DPI, TVPI & IRR
The three core metrics for judging a fund's performance — realized cash back, total value including paper gains, and annualized return rate.
DPI (Distributions to Paid-In capital) measures actual cash returned to LPs, divided by capital they've paid in — the only one of these three metrics that reflects money you can actually spend. A DPI of 1.0x means you've gotten your original capital back in cash; anything above that is realized profit.
TVPI (Total Value to Paid-In capital) adds the fund's unrealized, still-held positions (at their current estimated value) to DPI. A high TVPI with a low DPI is a fund with a lot of "paper" gains it hasn't actually converted into cash yet — common for young funds, but worth scrutinizing in older ones.
IRR (Internal Rate of Return) is an annualized percentage return that accounts for the timing of cash flows, letting you compare funds that deployed and returned capital on different schedules. It's the metric most prone to being flattered by early, quick paper markups in a fund's first years.
Why it matters
When diligencing a fund as an LP, ask for all three, not just the flattering one. A GP citing an impressive IRR or TVPI without disclosing DPI may be showing you paper gains rather than money actually returned — the gap between the two is exactly what a savvy LP checks first.