The Metrics That Matter to LPs in Venture Capital

Numbers are tricky. They can tell you one thing, but mean something entirely different depending on who’s asking. For most people, it’s about dollars and percentages—what you made, and how fast you made it. But for Limited Partners (LPs) in venture capital, performance isn’t just about "how much." It’s about context, timing, and potential.

Venture capital is unique. You’re betting on tomorrow’s ideas today, with the hope that some fraction of them will defy the odds. It’s a game of patience and risk, where the winners take it all and the losers evaporate without a trace. For LPs, it’s not enough to know if the fund makes money—they want to know how, when, and why. Here are the metrics they focus on, and why they matter more than you might think.

Internal Rate of Return (IRR): Not Just What You Make, But When You Make It

IRR is one of those metrics that sounds complicated but is really just trying to answer a simple question: How fast is your money growing? It measures the percentage return on every dollar invested, adjusted for time. Time matters because money today is worth more than money tomorrow—everyone knows that.

In VC, timing is everything. Some companies take a decade to go public or get acquired, while others fizzle out before they even make it to Series B. IRR helps LPs understand how efficiently a fund is turning investments into returns. A high IRR shows you're not just good at picking winners, but you’re doing it faster than others. It’s like running a marathon but sprinting the last 10 miles—you’re getting there quickly, and that’s valuable.

Total Value to Paid-In (TVPI): The Whole Picture

TVPI sounds technical, but it’s really just saying: "This is how much the fund is worth compared to how much was put into it." It’s a snapshot that captures both what’s been realized (companies that have exited) and what’s still on paper (the startups that haven’t yet hit their stride).

Why do LPs care? Because venture capital is a long game. It’s not just about what you’ve cashed out—it’s about the potential that’s still in the pipeline. TVPI tells them, "Here’s the full story of where we are, and where we could go." It’s hope, quantified.

Distributed to Paid-In (DPI): Show Me the Money

DPI is blunt: It measures how much cold, hard cash LPs have gotten back compared to what they put in. This isn’t about promises or projections. It’s about what’s actually hit their bank account.

LPs love DPI because it’s tangible. In venture, where outcomes are uncertain and the timeline is long, knowing how much cash has been returned to date provides clarity. DPI is reality, while TVPI is potential. It’s the difference between saying, "We’re almost there," and "Here’s your money."

Residual Value to Paid-In (RVPI): The Dream That’s Left

In venture, the dream is often still alive even after a few big exits. RVPI measures how much of that dream remains. It’s the value of the portfolio companies that haven’t exited yet, compared to the capital that’s already been invested.

LPs pay attention to RVPI because it’s the "what could be" part of the fund. Sure, they’ve gotten some money back (that’s DPI), but RVPI is the part that keeps them excited. It says, "There’s still more to come." And in a game where one or two home runs can make or break an entire fund, that’s important.

Multiple on Invested Capital (MOIC): The Simplest Story

MOIC is one of the easiest metrics to understand: It’s just how much you’ve made on your money, regardless of time. If you invested $1 million and now it’s worth $3 million, your MOIC is 3x. Simple, right?

LPs like MOIC because it cuts through the noise. While IRR is sensitive to timing and DPI is about cash, MOIC just says, "Here’s the bottom line." For long-term investors, this is often the metric they look at to decide whether a fund manager is worth backing again. It’s the raw measure of success, free from complications about when the money came in or went out.

Loss Ratio: A Reality Check

If venture capital is about picking a few winners, it’s also about surviving the losses. Loss ratio tells LPs how many of your investments have gone belly-up. No sugarcoating—it’s the percentage of startups that have failed outright.

A high loss ratio isn’t necessarily bad (VC is risky), but LPs want to know that you’re managing risk intelligently. A low loss ratio can be a sign that you’re doing something right, or at the very least, you’re not blowing money on pipe dreams. LPs expect some companies to fail—what they don’t expect is reckless gambling.

Exit Multiples and Timing: How Good Are Your Winners?

An exit multiple tells LPs how much you made when you exited a company compared to how much you invested. A 5x exit means you quintupled your money—something every LP loves to hear. Timing, on the other hand, speaks to how quickly these exits happen.

For LPs, this combo of exit multiples and timing is golden. It tells them how good you are at picking winners and how fast those winners are returning capital. A great exit 10 years down the road is nice, but an excellent exit five years in is better. After all, venture capital is about liquidity as much as it is about big wins.

The Bigger Picture

In venture capital, the story you tell with numbers isn’t just about returns—it’s about trust. LPs are looking for fund managers who understand risk, manage expectations, and know how to balance the highs with the inevitable lows. It’s a long-term relationship, and these metrics are the language through which that relationship is built.

IRR tells LPs how efficiently you’re working with their money, TVPI shows the whole picture, and DPI gives them proof of success. MOIC is the headline number, and RVPI keeps them dreaming about what’s still to come. Exit multiples and loss ratios add layers to the story—because in VC, no one wants just the final score. They want to know how you played the game.

About Taghash

Taghash provides an end-to-end platform for venture funds, private equity, fund of funds, and other alternative investment funds. Over the last seven years, we have served as a tech arm for top VCs, helping them manage their operations across deal flow, portfolio, fund, and LP management.

Trusted by leading fund managers like Blume Ventures, Kalaari Capital, and A91 Partners, we empower our clients to better manage their funds and achieve greater success.

Interested in learning how Taghash can elevate your fund management? Click here to book a demo.