Do LPs judge venture funds primarily on realized DPI or on paper marks and portfolio brand?

Jason Lemkin · Aug 9, 2023 · hedged

The Twitter narrative that LPs are pressuring managers for DPI over TVPI is largely wrong — the best LPs want the highest possible multiple and will not take a discount for cash

He recently turned down a ten-figure secondary offer in agreement with an LP because they're in the business of making money, not taking discounts; his three largest LPs told him directly they don't want cash and trust the liquidity will come

Scope: "sort of" some DPI pressure exists; "I know you'll hear other stories, but this is what I've heard"; specific to the best/most experienced LPs

53:10 20VC: The Memo: The State of the VC Market: Why Seed Funds Can't Invest in "Hot Startups" Anymore, Why Series A & B is Terrible, Why the IPO Market Will Explode in 2024 & Why VC DD is BS & Every VC Has More Fraud in their Portfolio with Jason Lemkin

Harry Stebbings · Jan 20, 2025

The claim that DPI is all that matters to LPs is false; showing a cohort of companies with tier-one investors following on is meaningful to LPs.

if you have to fundraise, follow-on from top firms makes life considerably easier

Scope: applies to managers who still need to raise

6:18 20VC: Why Large Seed Rounds Increase the Chances of Success | When to Sell in Venture | Why Multi-Stage Firms Do Not Do The Work | Is Europe Totally F****** and Why AI Means London Can Compete with the US with Hussein Kanji

Harry Stebbings · Aug 8, 2026

LPs have swung back to being impressed by TVPI and glossy logos, not only DPI

From his conversations with many LPs

50:18 20VC: The AI Boom Will Create Enormous Roadkill: Who Wins & Loses | Why Founders Should Never Take Multi-Stage Money at Seed | Why Triple, Triple, Double, Double is Good Enough

Jason Lemkin · Aug 11, 2023

LPs have effectively written off 2021 vintage funds and no longer hold their poor performance against VCs

Scope: about 2021 vintage funds

0:11 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Jason Lemkin · Sep 20, 2023

LPs will grant managers a mulligan for the 2021 vintage, and mulliganism will spread up and down the capital stack

Distributions have been awful, and if LPs don't allow themselves and their managers a mulligan they'd have trouble with their own sources of capital and their own jobs — you need a construct that lets you write off a bad vintage and survive

Scope: based on a small but good base of his own LPs

55:12 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Jason Lemkin · May 27, 2024

LPs have effectively given venture funds a mulligan on their 2021 vintage, and the open question is whether PE gets the same forgiveness

LPs have decided there's no point criticizing 2021-era markups; scrutiny has shifted to 2024 AI deals, so if PE is similarly excused the losses will be quietly forgotten

Scope: whether PE gets the same treatment is genuinely unknown; if held to the same standard it will be brutal

24:15 20VC: Why Seed is Systemically Broken | Why Pricing is Worse Than Ever and There is More Funding Than Ever | Benchmarks for Churn, Retention and Growth Rates - Good vs Great | Why Last Vintage for Private Equity Will Suck with Jason Lemkin

Mitchell Green · Mar 28, 2025

DPI is the only thing that matters in venture and paper marks are for suckers

64:39 20VC: Why Traditional VC is Broken: How VCs Learned Nothing from 2021 | Why LPs are More Important than Founders & Advice to Emerging Managers | Bull Case for Bytedance & Why TikTok's Ban Doesn't Matter with Mitchell Green, Lead Edge Capital

Larry Aschebrook · Jun 16, 2025

Using DPI as the North Star metric leaves a manager nowhere to hide

36:51 20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Larry Aschebrook · Jun 16, 2025

Endowments chase the wrong metrics: TVPI and MOIC are fake numbers and DPI is the only statistic allocators should focus on

DPI is the only thing you can actually use to buy food — i.e. only realized distributions are real

88:43 20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Harry Stebbings · Jun 19, 2024

LPs should have reduced the importance they place on TVPI after the last few years and focused on DPI instead

41:33 20VC: Foundation Models are the Fastest Depreciating Asset in History, Lina Kahn is a Threat to American Capitalism, PE is Not Coming to Save the M&A Market & How China Could Overtake the US in the AI Race with Michael Eisenberg

David Frankel · Oct 14, 2024 · hedged

DPI may be dead, and LPs are now looking at venture as an asset class and asking where the distributions are.

Scope: framed as 'could be'

0:00 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

David Frankel · Oct 14, 2024

LPs are angry about the asset class right now and their central question is where the DPI is

They did unbelievably well historically and some are now scared, though structural LPs like endowments and parastatals have to maintain an allocation even if it is tiny

Scope: depends on the LP type; thoughtful LPs are not being direct with managers because they still want access to good funds

28:48 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Eric Paley · Sep 20, 2023 · hedged

The last few years of venture will produce one of the biggest disconnects between TVPI and DPI in venture history

The period was characterized by apathetic capital

Scope: framed as a bet

0:08 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Eric Paley · Sep 20, 2023

Many LPs have still not internalized the coming TVPI-DPI gap, and many VCs actively argue against it

Based on his own conversations with LPs and VCs

65:46 20VC Roundtable: Is the VC Model Broken? The Biggest Disconnect Ever Between TVPI & DPI, Why Market Size is Dangerous, Why "Go Fast" is Terrible Advice, The Dangers of Raising Large Rounds at High Prices & Why Next Year Will See the Biggest Hiring Spree i

Beezer Clarkson · Oct 18, 2023 · hedged

Eric Paley is probably right that this will be the largest absolute gap ever between TVPI and DPI

The only comparable period was 1999-2000, and there likely weren't as many funds in the market then

Scope: in absolute numbers; uncertain whether fund volume comparison holds

27:44 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Harry Stebbings · Sep 6, 2024

What LPs currently frame as a liquidity or DPI problem is actually a permanent loss of capital problem, and many LPs hold significantly impaired books they don't yet recognise.

19:33 20VC: Why VC is a Ponzi Scheme Today | Why Most VCs are Bankers | Why Big VCs Ruin Startups | Why Incentives in VC are Broken | Why American Dynamism is a Tool for VCs to Raise Money with Nick Chirls, Asylum Ventures

Harry Stebbings · Oct 14, 2024

In many 2019-2021 funds the problem is not delayed DPI but permanent loss of capital

Based on looking at his own positions in a number of funds from those vintages

Scope: applies to a lot of cases, not all

29:12 20VC: Investing Lessons from FC Seeding Uber, Airtable and Coupang | Why Pro Rata is the Original Sin in VC | Why Liquidity Has Died in 2024 | Why LPs are Pissed with VCs | The Hard Truth About Seed Fund Economics with David Frankel @ Founder Collective

Beezer Clarkson · Oct 18, 2023

Because some LP allocators are compensated on DPI and others on TVPI, how a portfolio is marked affects their pay and external rankings, creating a push-pull over valuations in the market

Marks feed both personal compensation and external measurement like US News rankings

30:29 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Beezer Clarkson · Oct 18, 2023 · hedged

LP compensation tied to marks potentially should change, but there is no obvious mechanism to change it

30:49 20VC: Are LPs Open For Business? What Does it Take to Raise a Fund Today? How Has What LPs Want to See in Fund Investments Changed? Why Do LP Incentive Mechanisms Need to Change? Which Funds Will be Hit Hardest with Beezer Clarkson @ Sapphire Partners

Hussein Kanji · Jan 20, 2025

LPs should ignore TVPI for now, because deliberately buying more ownership in known winners at depressed prices suppresses markups today but will materially raise DPI in three to five years.

They are concentrating capital into the top third of each portfolio and actively avoiding ridiculous markups so they can put more money to work while ownership is cheap; if the picks are right, that shows up in realized returns later.

21:12 Suppressing markups now by concentrating into winners raises future dpi

Gili Raanan · Mar 28, 2026 · hedged

The supposed GP–LP misalignment on early distributions is weaker in practice than in theory — most sophisticated LPs actively cheer early liquidity from a new manager

When he distributed Wiz proceeds, his sophisticated LP base was overwhelmingly positive; only one or two objected that they were investing to take risk rather than hedge it

37:05 Lps actively cheer early distributions from new managers

Harry Stebbings · Jan 4, 2024

Only two things reliably let venture managers raise funds today: DPI, or a truly differentiated model you can prove tangibly

Cash back to investors always works, and LPs will still allocate enthusiastically to demonstrably differentiated managers

52:29 Dpi or a truly differentiated model are the only reliable fundraising levers

Jason Lemkin · Jan 4, 2024

For earlier-stage managers, one true epic outcome matters more than DPI when fundraising, because DPI is backward-looking and one Databricks-scale winner convinces LPs you have the secret sauce and can do it again

LPs don't invest on the basis that a manager used to be good; belief in repeatable ability is what carries a fundraise

52:48 One epic outcome outweighs dpi for earlier stage manager fundraising

Michael Eisenberg · Jun 19, 2024

LPs are right to still care about TVPI, not just DPI, provided they dig one level beneath it to ask how real and sustainable the underlying growth is

If a portfolio company is compounding at a high rate and keeps going, waiting two or three years can make it worth significantly more; but the value of the mark depends on the depth of competitive advantage underneath it

41:33 Tvpi still valid if lps scrutinize durability of underlying growth

Rick Zullo · Aug 23, 2023 · hedged

LPs are now wiser to the markup game

28:28 Lps grew wiser to the markup game

Jason Lemkin · Aug 23, 2023

LPs say they don't want aggressive markups, but they don't want the opposite either — perpetual 1x funds, all sub-nine-figure exits, or portfolios no later-stage firm will fund

28:33 Lps want neither aggressive markups nor perpetual 1x modest exit portfolios

Rick Zullo · Aug 23, 2023 · hedged

Emerging managers were pushed by competition for LP capital to chase markups, and the closing of those LP doors will get managers off the markup hamster wheel

Because so many emerging managers were fighting each other for capital, showing markups was the way to prove a great portfolio; now LPs are asking instead how much they trust the manager's process and honesty about numbers

28:53 Closing lp capital doors forces emerging managers off the markup treadmill

Nikhil Basu Trivedi · Sep 6, 2023

Dollars returned is the metric that matters most for a venture firm

51:01 Dollars returned not paper marks or aum is the metric that matters most

Jason Lemkin · Aug 9, 2023

Some LPs want managers to reopen prior funds and push more capital into them, because they'd rather maximize the return of a high-performing vintage than take cash out now

They believe the fund could deliver a high enough multiple that stuffing more capital in beats receiving distributions; best managers deploy well in excess of 100% of the fund and things pop later in the fund's life

54:24 Some lps prefer reinvesting in a high performing fund over taking distributions

Jason Lemkin · Aug 9, 2023

When an LP's portfolio swings from ~90% IRR to negative, the instinctive reaction is to shrink and concentrate into a smaller number of winning managers, cutting even good ones to chase DPI

The pressure for cash distributions plus the shock of the reversal pushes allocators to guess which managers are past their prime

57:19 Portfolio shock from boom to bust drives lps to shrink and concentrate into fewer managers chasing dpi

Oren Zeev · Feb 2, 2026

LPs are now over-focused on DPI, and treating all TVPI as untrustworthy is an understandable but wrong response

After four or five years of liquidity drought and with TVPI unreliable at face value, LPs have swung to discounting everything equally rather than discriminating between GPs — and this is cyclical and will change again

35:56 Dpi obsession is an overcorrection that will cycle back

Beezer Clarkson · Oct 18, 2023

LP measurement systems built around TVPI made sense when TVPI moved slowly and was a decent proxy for coming DPI; recent rapid markups broke that link and made the systems look confused

Historically valuations didn't rocket up within a year, so TVPI was an imperfect but reasonable signal of future DPI; when a company raises three times in a year to a $10B mark inside a $50M seed fund, the signal breaks

30:58 Tvpi was a reasonable dpi proxy until recent rapid markups broke the link

Beezer Clarkson · Oct 18, 2023

Manufactured distributions from soft landings can retain more than zero but cannot produce a 3x fund

Managers can find soft landings for companies that aren't working, but you can't force a company to go public, so those outcomes only create fodder at the bottom of the portfolio

36:09 Manufactured soft landing distributions retain value but cannot produce a 3x fund

David Frankel · Oct 14, 2024

Endowments and pension funds will maintain a venture allocation regardless of the current drought, having dialed back only modestly

Institutions of that type conclude they have to hold at least one to three percent in VC

33:04 Endowments and pensions maintain a one to three percent floor allocation regardless of drought