NVCA: Public Transparency Must Be Balanced with Protecting Private Data –

The post-Enron demand for transparency in public reporting of financial data is now squarely focused on investments made with public monies in venture capital and private equity funds. Newspapers, ostensibly on behalf of beneficiaries of the public pension plans that invest in private equity, and others, have sought public disclosure of the performance data and other sensitive information.

The National Venture Capital Association supports legitimate efforts to improve transparency in financial reporting as a means for the public to regain confidence in the business community. The NVCA is concerned, however, that some attempts to pursue transparency are in fact attempts to cull sensitive portfolio information that, if released, could damage our entire industry and its ability to back young, innovative companies and technologies.

From the onset of their relationship, most GPs and LPs agree to keep the details of their relationship confidential because it is in the best interest of both parties’ constituencies. LPs want to earn the best return possible and GPs want to safeguard sensitive information about the private companies in which they invest.

While it is clear that protecting portfolio company information is critical for the ability of venture firms to nurture and grow those companies, many feel that opening the door to the release of other information-such as internal rate of return-simply frees the way for more detailed Freedom of Information Act (FOIA) requests to continue.

The NVCA is committed to serving as a sounding board for debate and as an information resource for the industry as this discussion continues. An outline of recent FOIA issues and the association’s response, as of press time, is below:


On Oct.16, 2002, the San Jose Mercury News filed suit against California Public Employees Retirement System (CalPERS), requesting the release of “all reports showing the performance of private equity investments made under CalPERS Alternative Investment (AIM) Program….”

In response, the NVCA submitted a memorandum to CalPERS on Oct. 24, 2002, asserting that releasing this information would be harmful to our industry.

The NVCA filed an amicus brief in the CalPERS lawsuit.

On Nov. 14, 2002, the judge in the CalPERS case gave a preliminary ruling that will guide the next round of activity in this case. The judge established a fact-finding mechanism that will enable him to determine what, if anything, CalPERS must disclose.

The judge made the following tentative ruling: The identity and valuations of the portfolio companies of the funds in which CalPERS has invested are presumptively trade secrets and as such are not subject to disclosure. However, each of the funds in which CalPERS invested were to have filed a certification no later than Dec. 9, 2002, stating that the fund has not publicly disclosed the identity and valuation of its portfolio companies except confidentially to its partners. If a fund is not able to provide such a certification, the judge will appoint a referee to recommend whether the absence of such certification will be excused. The Mercury News had until Dec. 19 to object to the certifications.

The judge also ruled that all IRR data with respect to each of the funds in which CalPERS has invested is presumptively not a trade secret and as such may be subject to disclosure. However, each of the individual funds in which CalPERS has invested was permitted to file a declaration no later than Dec. 9, explaining why the IRR data is a trade secret and how the information has independent economic value to such fund.

The Mercury News had until Dec. 19 to file declarations putting forward any evidence to the contrary. The judge made it very clear that each fund that didn’t file a declaration by the Dec. 9 deadline risked that the court would compel CalPERS to disclose the requested information with respect to such fund.


The Secretary of State in Massachusetts has refused to reveal sensitive fund information. NVCA intends to work with our Massachusetts members to ensure that all interested firms are aware of the local coalition that is working on this issue.


The Attorney General of the State of Texas issued several decisions concluding that disclosure of the limited partnership agreements would result in substantial competitive harm. As a consequence, the Attorney General has directed the public entities that received the requests for information that they “must withhold from disclosure the requested partnership agreements” in their entirety.

Mark Heesen is president of the National Venture Capital Association.