Distributed to paid-in capital (DPI)

DPI is a simple, yet key financial metric used to evaluate the performance of a venture capital fund. More specifically, it measures how much capital has been returned to its limited partners relative to the amount they have invested. It is also known as the realization multiple.

DPI can be measured using the following formula:

In this formula:

• distributed capital refers to the total amount of money returned to the limited partners from the fund's investments
• paid-in capital is the total amount of capital that the limited partners have contributed to the fund

A DPI of 1.0 means that the fund has returned the same amount of capital that was invested. A DPI greater than 1.0 indicates that the fund has returned more than the invested capital, indicating that the fund has generated a profit. For instance, a DPI of 1.5 means that the fund returned $1.50 to its limited partners for every dollar of capital they invested. Conversely, a DPI lower than 1.0 suggests that the fund has returned less than the invested capital.

The DPI is an important metric showing the capacity of a fund to generate liquidity. It is a particularly relevant ratio to use in the later stages of a venture capital fund’s lifecycle. The reason is that early in the fund’s life, investments will typically not yet have come to fruition. As a result, DPI will be low, which is fully expected. 

Over time, however, the DPI should increase, as exits are realized through IPOs and other monetization events. If DPI values remain low through this later stage of a fund’s life, there may be good reason to be concerned about the fund’s ability to generate liquidity and deliver returns to investors.