The single most important acronym in venture capital right now is DPI — Distributions to Paid-In capital. After a decade where paper returns (IRR, TVPI) dominated LP conversations, the frozen exit market of 2023–2025 has shifted the focus entirely to actual cash returned. For emerging managers who raised funds in the 2021–2022 vintage, this is creating an existential pressure.
The DPI Problem
Most 2021–2022 vintage funds have impressive paper markups but near-zero DPI. The IPO window has been largely closed for two years, M&A multiples have compressed, and the secondary market — while growing — can only absorb so much volume. LPs who committed capital expecting 7–10 year return timelines are now hearing that returns might take 12–15 years to materialize.
- ▸Median DPI for 2021 vintage VC funds: 0.05x (essentially zero distributions)
- ▸Median DPI for 2022 vintage VC funds: 0.02x
- ▸LP re-up rates for emerging managers with low DPI: down 40% from 2022 levels
- ▸Average time for LPs to commit to a Fund II: increased from 6 months to 18 months
How Smart Managers Are Responding
The emerging managers who are successfully navigating this environment are doing several things differently:
- 1.Proactive secondary sales — facilitating secondary transactions for their best-performing portfolio companies to generate partial DPI
- 2.Structured liquidity events — working with portfolio companies on continuation vehicles or structured exits that return some capital to LPs
- 3.Transparent communication — sending quarterly LP updates with honest assessments of the exit timeline, not optimistic projections
- 4.Smaller Fund II targets — right-sizing their next fund to match realistic deployment pace and LP appetite
- 5.Portfolio value creation — shifting time allocation from sourcing new deals to helping existing portfolio companies reach exit-readiness
“My LP letter this quarter led with our DPI number — which is low — and a specific plan for how we're going to improve it over the next 18 months. The LPs who appreciated that honesty are the ones I want in my Fund II.”
— Inner Ping emerging manager, Fund I 2022 vintage
The question isn't whether a 2022 vintage fund has high DPI (it probably doesn't). The question is whether the GP has a realistic plan for generating liquidity and whether their portfolio companies are on credible paths to exit. Ask for the exit roadmap, not just the markups.
The Secondary Market Playbook for Emerging GPs
Secondary transactions have become the most practical path to near-term DPI for 2021–2022 vintage funds. The secondary market hit $152 billion in total volume in 2024, up from $108 billion in 2023. For emerging managers, even small secondary sales can meaningfully shift the DPI conversation with LPs.
Here's what's working: one Inner Ping GP facilitated a $3M secondary sale of shares in their top-performing portfolio company (a Series B SaaS business doing $8M ARR). The sale generated 0.12x DPI on their $25M fund — modest in absolute terms, but it moved the conversation from 'when will we see any money back?' to 'the GP is actively managing liquidity.' That shift in perception helped them close 60% of their Fund II target within four months.
What LPs Actually Want to Hear in 2025
- ▸A realistic exit timeline for the top 5 portfolio companies — not 'we'll IPO in 2027' but specific milestones that would trigger M&A interest or secondary eligibility
- ▸The GP's own financial alignment — are they taking full management fees while LPs wait for returns, or have they adjusted comp to demonstrate shared sacrifice?
- ▸Specific DPI targets for the next 12–24 months with identified paths (secondary sales, structured dividends, M&A processes underway)
- ▸Honest portfolio triage — which companies are winners, which are middle-of-pack, and which should be written off? LPs respect GPs who mark down early rather than maintain phantom valuations
- ▸Market context for the portfolio — how do the fund's companies compare to sector benchmarks on growth, efficiency, and path to liquidity?
A counterintuitive finding from LP surveys: emerging managers with lower TVPI but a clear, honest narrative about their portfolio outperform managers with high TVPI but vague plans when it comes to Fund II closes. LPs have learned that TVPI without DPI is a vanity metric. One LP at a $2B family office told us: 'I'd rather back a GP showing 1.5x TVPI with 0.3x DPI and a real plan than a GP showing 3x TVPI with zero distributions and a story about waiting for the IPO window.'
The emerging managers successfully raising Fund II in 2025 are targeting 60–75% of what they'd ideally want, not 100%. A GP who raised a $30M Fund I is targeting $40–50M for Fund II, not $75M. This signals discipline to LPs and creates scarcity that accelerates the raise. The math: if Fund II closes faster, you deploy sooner, generate returns sooner, and build the track record for a properly-sized Fund III.
Max Hartmann
Max runs Berlin Collective, a $60M climate-focused fund that has backed 28 companies across energy, transportation, and industrial decarbonization. He was previously CTO at SolarEdge.