What is TVPI?
Total value to paid-in (TVPI) is one of several metrics that private equity and venture fund managers and their investors use to evaluate a fund’s performance. TVPI is a ratio that’s usually expressed as a multiple of the total capital paid into the fund.
When an investor talks about the “multiple” on a given fund or investment, they’re either talking about TVPI, distributions to paid-in capital (DPI), or multiple on invested capital (MOIC). During the fund’s life, TVPI is the most relevant of these three investment performance metrics. After a fund’s lifecycle is over and it liquidates all remaining investments, TVPI is no longer useful because it will be equal to DPI.
Realized vs. unrealized investments
The “total value” in TVPI is the sum of both realized investments and the residual value of the fund’s unrealized investments. In other words, total value is the current value of the fund’s existing holdings plus any distributions the fund already made to investors.
Realized investments
Realized investments are capital that has already been returned to the fund’s limited partners (LPs) in the form of fund distributions. These distributions could result from interest or dividends on fund investments, but the bulk of private fund distributions usually come from liquidating the fund’s position in one or more of its portfolio companies. This can occur through an acquisition or initial public offering (IPO) of the portfolio company, or through a fund’s sale of portfolio company equity on the secondary market.
Unrealized investments
Unrealized investments are investments that the fund still holds. A fund must calculate the unrealized value of these investments according to its valuation policy.
How to calculate TVPI
The formula for calculating TVPI is relatively simple: Add the total value of all distributions (realized investments) and the fund’s residual value (unrealized investments) and divide by the total capital that investors have paid into the fund thus far (including any reinvested capital):
Net TVPI vs. gross TVPI
When calculating TVPI, it’s assumed the fund’s total value in the denominator is net of any management fees and carried interest. In other words, TVPI usually means net TVPI.
You can calculate gross TVPI by not subtracting fees and carry from the numerator of the fraction. But LPs and prospective investors care more about net TVPI.
How interpret TVPI
Any TVPI value above 1.0 means that net of any fees and carry, the fund yielded a positive return on the capital invested so far. For example, a TVPI of 1.75 means that the fund’s investments returned $1.75 for every dollar invested.
A value below 1.0 means that once fees and carry subtracted from returns, the fund returned less than investors paid in.
TVPI vs. IRR
Unlike internal rate of return (IRR), which uses a discounted cash flow analysis to account for the speed of returns, time is not a variable for TVPI. Instead, TVPI gives investors an estimated investment multiple on the total capital paid into the fund so far.
TVPI vs. MOIC
TVPI is similar to another fund metric: multiple on invested capital (MOIC). But fund managers usually only consider MOIC after the fund’s lifecycle has concluded, when TVPI is no longer relevant. Unlike TVPI, MOIC is usually a gross metric rather than its net equivalent, DPI.
TVPI vs. RVPI
RVPI (residual value to paid-in capital) is an expression of the remaining value of the fund’s holdings to the total amount of capital investors have paid in to date. Unlike TVPI, RVPI doesn’t account for fund distributions. And because a fund will eventually liquidate all of its investments, RVPI will decline to zero at the end of the fund’s life.
Advantages of TVPI
While calculating IRR involves a complex formula, TVPI is a simple calculation. And because TVPI is expressed as a multiple, it’s also easy for non-professional investors to understand what it means. When an investor speaks to novice venture capital fund LPs, like non-expert angel investors, about the track record of their investments, they usually express them in the form of multiples like TVPI, DPI, and MOIC.
