Venture Math

In venture, few metrics matter more than DPI. Distributed to Paid-In Capital (DPI) tracks how much capital is actually returned back to LPs vs. what they originally invested.

If DPI is above 1.0, LPs have received at least their initial investment back, not considering the time value of money, meaning the GPs have “returned the fund.

Now, of course, LPs don’t invest in venture, a comparatively risky alternative asset class, just to “return the fund.” The people that write cheques for the people that write the cheques (LPs) are sophisticated investors, sovereign wealth funds, pension funds, high net worth individuals, and insurance companies, where venture often represents a small part of their portfolio, typically as a diversification play with the potential for outsized returns compared to traditional asset classes.

Venture is an illiquid, 10-year+ game where investors want an IRR to prove the juice is worth the squeeze. Benchmarks vary by fund size and vintage, but savvy GPs aim to deliver an alpha on a risk-adjusted return basis that rewards LP’s risk.

Outperforming other asset classes in venture is no small feat: research on the percentage of startups that fail range between 75-90%, and investors see their ownership in survivors diluted as companies near an exit (refer to our post on dilution and cap table management).

Meanwhile, management fees steadily drain capital, forcing the fund to chase outsized returns to break even. The power law dictates that one mega-exit—a unicorn or decacorn—must often offset a sea of losses or modest outcomes.

Without a colossal home run, it becomes incredibly difficult to make the math work. This is the line that the best GPs walk while consistently delivering top quartile returns.

Imagine a $100M fund with standard 2% management fees over a 10-year fund life ($20M), leaving $80M to invest across 16 startups:

🚫 12 fail, returning $0

📉 3 deliver modest exits, returning $5M each.

💰 1 big win—a 10x return on $5M.

Even with a 10x winner, what many would consider a homerun, the fund still falls short of returning the original amount invested by LPs (returns $65M)—a  DPI less than 1.0. Not returning the fund, let alone outperforming the market or other asset classes.

Without a true outlier (think 100x+), the “venture math” often falls short.

So next time an investor picks apart market size, ACV, or public comps, remember—they're guarding against the uphill battle that is fund returns. Wins are smaller than you’d think, and every write-down is another painful reminder of the world where investors and high-conviction operators live.

The upside? When venture works, it really works. The homeruns are well-documented, and as an asset class, in our mind, it’s more than earned its seat at the table.