Returns & Metrics
What is DPI in venture capital?
Quick Answer
DPI (Distributions to Paid-In) measures cash actually returned to LPs as a multiple of called capital. A DPI of 1.0x means LPs have gotten their money back. It's the most reliable return metric because it reflects real distributions, not paper gains.
Detailed Answer
DPI is the gold standard return metric for LP evaluation because it measures actual cash returned — not theoretical portfolio value.
Formula: DPI = Cumulative Distributions ÷ Total Paid-In Capital
DPI milestones: - **DPI < 1.0x** — LPs haven't gotten their money back yet - **DPI = 1.0x** — Break-even (capital returned) - **DPI > 1.0x** — LPs are in profit
DPI benchmarks by fund age (approximate): - Years 1-3: 0.0x (too early for exits) - Years 4-6: 0.1x-0.5x (first exits starting) - Years 7-9: 0.5x-1.5x (major distributions) - Years 10+: 1.5x-3.0x (top quartile)
Why DPI > TVPI for LP decisions: - TVPI includes unrealized portfolio value (NAV), which is an estimate - Unrealized values can be written up or down significantly - LPs have been burned by high TVPI funds that never distributed - "DPI is truth, TVPI is opinion" — common LP saying
Caveat: DPI can be misleading for young funds. A 5-year-old fund with 0.3x DPI isn't necessarily bad — most exits happen in years 5-10.
Related Questions
What is IRR (Internal Rate of Return)?
IRR is the annualized return rate that makes the net present value of all cash flows equal to zero, accounting for the timing of investments and distributions. Top-quartile VC funds target 20-30% net IRR.
What is ARR (Annual Recurring Revenue)?
ARR is the annualized value of recurring subscription revenue, calculated as MRR × 12. It's the primary growth metric for SaaS companies, with VCs typically expecting 2-3x year-over-year growth for Series A candidates.
What is MOIC (Multiple on Invested Capital)?
MOIC is the ratio of total value returned to total capital invested, regardless of time. A 3x MOIC means investors received 3 times their money back. Top-quartile VC funds target 2.5-3.5x net MOIC.
What is burn rate?
Burn rate is the monthly rate at which a startup spends cash beyond its revenue. Gross burn is total monthly spend; net burn is spend minus revenue. Runway = Cash on Hand ÷ Monthly Net Burn Rate.