A year-by-year cash profile shows how far the cash return of a venture fund lags its paper multiple, and what moves the date.
Track cumulative distributions against paid-in capital year by year and find the year the ratio passes 1.0x. In an illustrative $100 million venture fund that calls $92 million over six years and ends at 2.16x, DPI reaches 1.0x after 8.8 years, while TVPI is back above 1.0x after 2.4 years. The cash catches up with the paper more than six years later, and at the nominal ten-year term a third of the value is still unrealised.
Worked in full in Venture Capital by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The fund is fictional and the profile is illustrative, chosen to look like a venture fund that does well rather than one that is exceptional. It commits $100 million, calls capital over six years, management fees included, and invests in companies whose value grows fastest in years 4 to 7. Distributions are modelled as a rising share of NAV each year: a trickle from year 4, when the first acquisitions close, and the bulk from year 8 onwards, when the larger companies reach a sale or a listing.
| Year | Called | Paid-in | Distributed | Cumulative distributions | NAV | DPI | TVPI |
|---|---|---|---|---|---|---|---|
| 1 | 20 | 20 | 0.0 | 0.0 | 19.2 | 0.00 | 0.96 |
| 2 | 22 | 42 | 0.0 | 0.0 | 40.6 | 0.00 | 0.97 |
| 3 | 20 | 62 | 0.0 | 0.0 | 64.6 | 0.00 | 1.04 |
| 4 | 15 | 77 | 2.7 | 2.7 | 87.8 | 0.04 | 1.17 |
| 5 | 10 | 87 | 6.9 | 9.6 | 107.6 | 0.11 | 1.35 |
| 6 | 5 | 92 | 13.2 | 22.8 | 119.2 | 0.25 | 1.54 |
| 7 | 0 | 92 | 20.6 | 43.4 | 116.5 | 0.47 | 1.74 |
| 8 | 0 | 92 | 26.1 | 69.5 | 104.4 | 0.76 | 1.89 |
| 9 | 0 | 92 | 28.7 | 98.2 | 86.1 | 1.07 | 2.00 |
| 10 | 0 | 92 | 27.9 | 126.1 | 65.1 | 1.37 | 2.08 |
| 12 | 0 | 92 | 18.8 | 169.0 | 28.3 | 1.84 | 2.14 |
| 15 | 0 | 92 | 6.1 | 198.9 | 0.0 | 2.16 | 2.16 |
DPI is cumulative distributions divided by paid-in capital, the money actually called, not the commitment. The crossing point sits inside a year, so interpolate between the year-end values, which assumes distributions arrive evenly through the year.
DPI(t) = cumulative distributions(t) / paid-in(t)
Crossing year = (t − 1) + (1.0 − DPI(t−1)) / (DPI(t) − DPI(t−1))
At the end of year 8 DPI is 0.76; at the end of year 9 it is 1.07. Crossing = 8 + (1.0 − 0.76) / (1.07 − 0.76) ≈ 8.8 years.
Excel, with DPI in column H: =MATCH(TRUE,INDEX(H2:H16>=1,0),0) gives the first year at or above 1.0x; interpolate from the row above.
TVPI follows the same logic with NAV added to the numerator. It dips to 0.96 in year 1 as fees and early write-downs bite, and climbs back through 1.0x during year 3, at about 2.4 years. That is the bottom of the paper J-curve. The cash J-curve is far deeper and longer.
The fund returns its paid-in capital in cash after 8.8 years. Half of it comes back by year 7.1, and only 11.5 per cent of all distributions have been paid by the end of year 6. The second half of the life does the work: years 9 to 11 alone pay 40.6 per cent of everything the fund will ever distribute.
Two other readings follow from the table. Measured against the commitment rather than paid-in, DPI reaches 1.0x after 9.1 years, because the $8 million never called still counts in the denominator; a limited partner who tracks money committed sees a later date than the fund's own report. And at the end of year 10, the nominal term of most venture funds, 34.1 per cent of the fund's value is still NAV. A fund that ends at 2.16x shows 1.37x in cash at its tenth birthday, which is why extensions are the norm and why a DPI at year 10 understates the eventual outcome. For the three ratios side by side, see how to calculate TVPI, DPI and RVPI.
| Case | DPI 1.0x after (years) | Final DPI |
|---|---|---|
| One extra exit of $30m in year 7 | 7.7 | 2.49 |
| Base case | 8.8 | 2.16 |
| Every distribution one year later | 9.4 | 2.32 |
| Every distribution two years later | 10.2 | 2.46 |
| Growth 40 per cent lower each year | 9.8 | 1.59 |
A single early outlier changes the date more than anything else: one extra exit worth 0.33x of paid-in, in year 7, pulls the crossing forward by more than a year. That is the power law expressed in time rather than in multiple. Delaying exits pushes the date out, and in this model it also raises the final multiple, because companies keep compounding while they are held; the internal rate of return, which is the measure that punishes waiting, would fall. A weaker portfolio that ends at 1.59x does not reach 1.0x in cash until nearly year 10.
The profile is illustrative. Real funds vary by vintage, strategy and exit market, and a fund raised before a weak exit window can take well over a decade. The method, not the date, is the transferable part.
A well-performing venture fund typically gives its investors their money back in cash late in its life, in this illustrative case after 8.8 years, and the date is driven by the timing of a few large exits. Plan liquidity on the DPI curve, not on the TVPI curve, and read any early 1.0x on paper as a statement about marks. The fee, carry and timing arithmetic behind the multiples is in the free companion workbooks.
It depends on the final outcome and the exit market, so judge DPI with RVPI. In the illustrative fund, which ends at 2.16x, DPI at year 10 is 1.37x and 34.1 per cent of total value is still NAV. A fund with lower DPI at year 10 may simply have later exits, while one with high DPI and little NAV left has less upside to come.
On paid-in capital, the amount actually called. Using the commitment understates DPI whenever part of it stays uncalled. In the worked case $92 million of the $100 million commitment is called, and DPI reaches 1.0x after 8.8 years on paid-in but after 9.1 years on commitment.
Because TVPI counts unrealised NAV, which rises as companies raise up rounds long before they are sold. In the illustrative fund TVPI passes 1.0x after about 2.4 years and DPI after 8.8 years, a gap of 6.3 years during which every gain is a valuation mark rather than cash.
This article is one calculation from Venture Capital. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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