Which Metrics Matter to LPs During Each Phase of a Fund’s Lifecycle?
The right metric depends heavily on where the fund is in its lifecycle. What matters during capital deployment is not what matters during the harvest phase, and reporting or evaluating performance without that context leads to the wrong conclusions. You need the right metrics, at the right time, to make the best decision.
1. Investing a Fund I or a New Fund
This is the credentialing period. LPs are not yet capital partners — they are evaluating whether to become one. At this stage:
If your Track Record is limited, then you will need to tell a clear story as the metrics will not have statistical significance. Don’t over play your hand, seasoned investors can spot embellishment.
MOIC from prior funds is the headline number. A 3x or better net MOIC is a meaningful signal of value creation.
IRR provides the time-adjusted context. A 3x over 3 years is a very different outcome from a 3x over 12 years. IRR makes that distinction legible and allows comparison against other managers and asset classes.
TVPI will shift in spurts as companies in the portfolio come to market. Additionally, more capital is paid in the first years of a fund, so TVPI tends to stay around 1x for the first few years.
DPI is the credentialing number. It tells both the GP and investors that the markups were real, the exits were real, and the performance was not driven by paper marks that never converted. GPs who lead with IRR and MOIC while a prior fund's DPI is still near zero should be prepared to explain why.
2. Active Deployment Phase of Fund just raised
This is the "trust me" period. Capital is being deployed but exits are rare. IRR and MOIC are both unstable and largely meaningless this early.
TVPI is the most honest available signal. It reflects how the portfolio is being marked and whether early investments are appreciating on paper. Conservative marks here tend to build more credibility over time than aggressive ones. The key to understanding TVPI in the early years is to build an understanding of the portfolio from the ground up. How are companies progressing? When will the next financing event take place? What valuation?
IRR is noisy at this stage, highly sensitive to the timing of capital calls and early marks. It can swing wildly quarter to quarter and should be used in context with other metrics and qualitative information.
DPI will be very low or zero, and that is expected. Any early liquidity events (secondaries, partial exits, recaps) that begin to build even a small DPI carry disproportionate signal value. Managers will have to decide how much to recycle versus distribute if they have early company distributions back to the fund.
3. Pre-Fundraise Positioning for the subsequent Fund
This is the "prove it" period. The GP is beginning to tell the story of the current fund to attract capital for the next one. LPs are now scrutinizing much more carefully:
TVPI still matters, but needs to be substantiated by DPI. A 2.5x TVPI with a 0.1x DPI tells a very different story than a 2.5x TVPI with a 0.8x DPI. The DPI/TVPI ratio (the percentage of stated value proven out in cash) becomes the central lens.
DPI becomes the anchor of the narrative. Even one or two strong realized exits meaningfully validate the story. The quality of what was sold matters as much as the fact that distributions happened.
IRR becomes more meaningful as exits accumulate. A strong net IRR at this stage is a genuine fundraising asset, but it reads differently when paired with a healthy DPI than when DPI is still minimal.
MOIC is useful for deal-level storytelling at this stage but less useful at the fund level until more capital is returned.
4. Harvest Period from the first Fund as the firm grows
This is the "show me the money" period. The J-Curve has bottomed out and the fund is in distribution mode. This is where true performance is revealed:
DPI is the number that matters most. A DPI above 1.0x means capital has been returned. Above 2.0x is strong. Above 3.0x is exceptional for most strategies.
Net MOIC is the final scorecard. Simple, clean, irrefutable. It tells the story of how many times invested capital was multiplied, net of all fees and carry.
IRR still matters for benchmarking and ranking across funds, but absolute return magnitude takes over as the primary conversation. A 35% IRR with a 1.8x net MOIC reads very differently to most investors than a 22% IRR with a 3.5x net MOIC, particularly when capital preservation and absolute dollar outcomes drive the mandate.
TVPI fades as the unrealized portion of the portfolio shrinks. As RVPI approaches zero, TVPI and DPI converge. That convergence is the sign of a fund completing its lifecycle as intended.
| Period | Most Meaningful Metric | What LPs Are Really Asking |
|---|---|---|
| Fundraising | MOIC + IRR (prior funds) + DPI | Did you create value before? |
| Active Investing | TVPI | Is the portfolio healthy on paper? |
| Pre-Next Fund Raise | TVPI + Early DPI/TVPI Ratio | Is any of this real yet? |
| Returning Capital | DPI + Net MOIC | How much money did I actually make? |
The through-line for LPs is a simple progression: paper → proof → cash. The metrics shift in relevance accordingly.
How These Metrics Interact
MOIC, TVPI, IRR, and DPI are not competing answers to the same question. They are answers to different questions, applied to the same underlying reality. Presenting or reading only one metric is not just incomplete; it tends to produce the wrong conclusion.
Imagine Fund A has the following cash flows:
LP commits $10M
Capital is called over Years 1–3
One distribution of $5M comes back in Year 4
The fund winds down in Year 10 with a final distribution of $20M
| Metric | Result |
|---|---|
| MOIC | 2.5x |
| IRR | ~18% |
| TVPI (at Year 6) | ~1.8x |
| DPI (at Year 6) | ~0.5x |
| DPI (at Year 10) | 2.5x |
Now here is what each metric tells the LP…and what it doesn't:
MOIC says: $10 million became $25 million. It captures the magnitude of value creation cleanly. It says nothing about how long capital was at risk to get there.
IRR says: capital compounded at roughly 15% per year. That benchmarks the fund against public equities and other asset classes. It is also the metric most susceptible to timing manipulation: delay a capital call via a subscription line and the clock starts later, making the annualized rate look better without changing the investor's actual outcome.
TVPI at Year 6 says: combining what has been received with current portfolio marks, the fund sits at 1.8x. That includes unrealized value that may or may not materialize. It is a progress report, not a final grade.
DPI at Year 6 says: of the 1.8x TVPI, 0.5x has actually been returned in cash. The DPI/TVPI ratio of roughly 0.28x is on the lower side for a fund at this stage. Not necessarily a warning sign, but the direction of that ratio over the next few years will be telling.
The IRR vs. MOIC Tradeoff
IRR rewards speed and MOIC rewards scale, and those two objectives are frequently in tension. This matters most in early-stage venture, where it shapes how GPs think about timing exits and how investors evaluate performance.
Example: The Quick Flip (High IRR, Low MOIC)
A fund invests $10M, returns $22M in 2.5 years.
MOIC: 2.2x
IRR: ~30%
Example: The Long Compounder (Lower IRR, High MOIC)
A fund invests $10M, returns $50M over 9 years.
MOIC: 5.0x
IRR: ~20%
From a pure IRR standpoint, Scenario A looks better. But from a wealth creation standpoint, Scenario B generated more than twice as much actual money.
Investors optimizing for annualized rate (certain fund-of-funds, for example) may genuinely prefer Example A, particularly if they can reinvest capital productively. Investors trying to build wealth over long horizons (endowments, pension funds, family offices) often care far more about absolute dollar magnitude, and for them Example B is the better outcome.
In early-stage VC, power law dynamics mean the best funds win through outlier magnitude, not speed. The 10x, 20x, 50x outcomes require time, and a fund that exits its best positions early to manufacture a strong IRR may be leaving most of the return on the table.
In growth equity or late-stage funds, where hold periods are compressed and magnitude multiples are structurally lower, IRR is a more appropriate primary lens.
TVPI as a Bridge: Why It Matters Most in the Middle Years
TVPI is probably the most misunderstood of the four metrics because it occupies the middle of a fund's lifecycle, and its value and its limitations are both products of that position.
What TVPI is actually doing: TVPI = (Distributed Capital + Remaining NAV) / Paid-In Capital
It is trying to give the LP a complete current picture of a fund by combining what has already been returned (hard, real, bankable) with what the portfolio is worth today on paper (soft, estimated, subject to change). The critical insight is that these two components are not equal inquality, and an LP must always mentally decompose TVPI into its parts.
Think of it this way:
A fund with a 2.0x TVPI = 1.5x DPI + 0.5x RVPI is a very different fund from one with
A 2.0x TVPI = 0.1x DPI + 1.9x RVPI
The first fund has returned the majority of LP capital in cash and still has upside remaining. The second fund has almost all of its value locked up in unrealized positions — it is largely a bet on future markups and exits.
Why TVPI is the LP's best available tool in years 3–6 of a fund:
In the middle years of a fund, IRR is too noisy (still being heavily influenced by timing of early capital calls and initial markups) and DPI is too low (exits are just beginning) to give the LP a reliable signal. TVPI fills the gap by giving a holistic mark-to-market view of the fund's progress. An LP watching TVPI climb from 0.7x to 1.2x to 1.8x over those years is getting meaningful data about portfolio health — even if the number is partly based on paper marks.
The key questions to ask when evaluating TVPI:
How are unrealized positions being marked? Conservative methodology (last round valuation) produces a more defensible number than aggressive approaches (DCF projections, forward revenue multiples). Fund administrators and auditors provide oversight here, but significant judgment remains.
Is TVPI trending in the right direction? A declining TVPI over consecutive quarters means either exits are not keeping pace with markdowns, or the underlying portfolio is deteriorating. Both are meaningful signals.
How does TVPI hold up under stress? Writing off the bottom quartile of the portfolio and recalculating gives a sense of the fund's durability. If TVPI holds up, the core of the portfolio is doing the work.
The bottom line: TVPI is most useful precisely when the other metrics are least reliable. It is the primary navigation tool during the long, uncertain middle stretch of a fund's life. A high TVPI deserves skepticism unless it is increasingly backed by real distributions. A rising DPI/TVPI ratio is one of the clearest signs that a fund is translating paper performance into actual results.
As always, Limited Partners are encouraged to analyze track records in depth, ask questions, and build conviction in the decision-making process of the General Partners they back.
At Signal Fund Services, we see the mechanics behind all of these metrics every day: the capital call notices, the distribution waterfall calculations, the quarterly reports. What I have found working across both sides of these conversations is that the numbers themselves are rarely the source of confusion. The confusion comes from presenting them without context, or from not having a framework for knowing which question each metric is actually answering.
These four metrics, read together, are genuinely powerful. MOIC captures the magnitude of what was built. IRR captures how efficiently it was built. TVPI captures where things stand today. DPI captures what has actually been proven. None of them alone tells the full story, but together they leave very little room for ambiguity.
For GPs, this means building a habit of presenting the full picture, not just the numbers that are most favorable at a given moment. For investors, it means knowing which metric to weight most heavily depending on where a fund sits in its lifecycle, and pressing for the ones that are conspicuously absent.