Fund Return Model

A top-quartile VC fund returns 3x or more net to LPs (limited partners) over the fund's 10-year life. This translates to roughly a 20-25% net IRR. The median VC fund returns closer to 1.5-2x, which barely outperforms public markets after fees and illiquidity are accounted for. Exceptional funds (top decile) can return 5-10x or more, but these are rare. Most VC funds actually lose money for their LPs when you factor in the J-curve and opportunity cost.

TVPI (Total Value to Paid-In) measures total fund performance including both realized exits and unrealized paper gains. DPI (Distributions to Paid-In) measures only actual cash returned to LPs. DPI is considered the more reliable metric because paper gains can evaporate — a portfolio company valued at $100M today could be worth $10M next year. Experienced LPs focus on DPI and treat TVPI with skepticism, especially for funds under 5 years old where most value is unrealized.

Carried interest is the GP's (general partner's) share of fund profits, typically 20% of gains above the hurdle rate. In a $50M fund that returns $150M, the $100M in profit is split roughly 80/20 — LPs receive $80M and the GP receives $20M in carry. Most funds require the GP to clear a hurdle rate (usually 8% annually) before carry kicks in. Carry is the primary way VC fund managers make money, as management fees (typically 2% of fund size) mainly cover operating costs.

RVPI (Residual Value to Paid-In) represents the unrealized, paper value of a fund's remaining portfolio relative to the capital invested. RVPI = TVPI minus DPI. A high RVPI means most of the fund's reported value is still locked up in portfolio companies that haven't exited. While a promising signal, RVPI is inherently uncertain — markups can be reversed, and companies may never achieve the valuations used to calculate RVPI. LPs prefer to see RVPI convert to DPI over time.