TVPI vs. DPI: Unpacking the Metrics That Define Fund Performance

In venture capital, two key metrics define a fund’s performance: Total Value to Paid-In Capital (TVPI) and Distributions to Paid-In Capital (DPI). These metrics provide valuable insights, but it's crucial to understand their implications from an investor’s perspective.

TVPI is often used as an indicator of fund performance, as it determines the cost of a fund unit for a Limited Partner (LP). A TVPI of 2.0x, for instance, suggests that for every dollar invested, the fund would return $2.00. A TVPI above 1.0 signals a positive return, whereas a TVPI below 1.0 reflects a loss of capital. The calculation behind TVPI is:

TVPI = (Net Cumulative Distributions + Residual Value) / Paid-In Capital

One key component of this equation is Residual Value, which represents the unrealized potential profits of a fund’s investments. These are illiquid and still carry risk, as they are marked-to-market rather than fully realized gains. From an investor’s perspective, TVPI answers the question: “What is the value of a fund unit based on its realized and unrealized profits, and how does it compare to the invested capital?” While TVPI helps estimate the market value of a fund, it’s important to recognize its limitations.

We prioritize DPI as our preferred return metric because it represents realized returns. DPI reflects how much capital has actually been distributed back to LPs through exits or dividends, making it a concrete measure of fund performance. Unlike TVPI, which can be influenced by projections and market sentiment, DPI provides a true reflection of investor returns. As Carta puts it, “DPI is the metric that rules them all.”

Here’s how DPI is calculated: DPI = (Cumulative Distributions - Management Fees) / Paid-In Capital

Unlike TVPI, DPI excludes residual value, focusing solely on actual cash returns. While projected IRR can be estimated based on variations in TVPI, DPI remains the ultimate measure of success, ensuring that LPs see tangible returns rather than just paper gains.

For example, a DPI of 1.0x means that the fund has returned to LPs exactly what was originally invested—without accounting for residual value or potential future gains. A DPI above 1.0 indicates that LPs have received more than their invested capital, whereas a DPI below 1.0 suggests that investors have not yet recovered their full principal investment.

In short, while TVPI can offer insights into potential fund value at any given moment in time, DPI is the real test of a fund’s ability to generate returns.