DPI: The Best Birthday Present a VC Could Ask For

Reflecting on the quiet joy of delivering real capital back to our investors

“Show me the money!” - Jerry Macquire, Jerry Maguire (1996)

In venture capital, fund managers chase paper valuations like children pursuing fireflies. Yet amid this pursuit of theoretical returns, only one metric leaves a tangible imprint: DPI – Distributions to Paid-In Capital. The rest are merely promises scribbled on term sheets.

Last night at The Centurion, celebrating my 51st birthday with a few of my fraternity brothers I met back in DC in 1992, I found myself reflecting on what truly matters. The week's greatest gift wasn't wrapped at our dinner table but arrived days earlier when Sugar Capital delivered its first cash distribution from our 2022 vintage fund. In life and in investing, what endures isn't what's promised, but what's delivered.

That gift? A thoughtfully executed secondary sale that brought our fund's DPI above zero at a time when most 2022 vintage funds remain stuck at the starting line. According to Equitybee's analysis, the median DPI for these funds stands at 0.00x – most have yet to return a single dollar to their investors.

The venture capital industry suffers from a collective delusion about what constitutes success. We've created elaborate mathematical constructs to convince ourselves, and our limited partners, that paper gains represent actual value. They don't. A unicorn valuation makes for good headlines, but it doesn't pay university scholarships or fund pension obligations. Only cash does that.

As I discussed in "The Discipline of Liquidity", intelligent secondary selling isn't a hedge, it's a fiduciary tool. When a company's valuation has increased 50x from your entry point, the mathematical asymmetry that justified your original investment has fundamentally changed. In today's environment, where companies remain private for 12-15 years, holding every position until the final exit isn't conviction — it's an outdated orthodoxy that costs LPs billions in unrealized returns.

When I entered this business, I quickly realized that venture capitalists should be judged by their ability to return actual money to investors, not by how skillfully they could mark up their portfolio companies in subsequent funding rounds. The pendulum has swung too far toward paper performance, with TVPI treated as gospel despite its vulnerability to manipulation through optimistic valuations. As Howard Marks bluntly put it, "You can't eat IRR." Similarly, you can't spend TVPI.

Our modest distribution isn't cause for chest-beating. It's simply evidence that we're doing what we promised: converting investments into real returns for our investors. It's a start, nothing more.

In today's market, where exit windows have narrowed to slits and M&A activity remains subdued, many fund managers are trapped in a waiting game. They're sitting on portfolios of companies with impressive paper valuations but diminishing prospects for liquidity. Some are quietly hoping for market conditions to improve before their funds reach the end of their lives.

Hope, however, is not a strategy.

At Sugar Capital, we've maintained discipline in an undisciplined market. We've focused on investing in companies that can generate real value, the kind someone is willing to pay for, not just assign to a spreadsheet cell. Our recent secondary sale represents this philosophy in action. We secured value when it materialized, putting actual dollars back in our LPs' hands.

This isn't rocket science. It's simply returning to the fundamentals of what venture capital was meant to be: a vehicle for turning promising ideas into profitable enterprises that generate tangible returns for the investors who took the risk. DPI is the purest expression of that mission.

The venture industry has become too comfortable with delayed gratification. Fund managers talk about "patient capital" while collecting management fees year after year on unrealized portfolios. LPs are increasingly skeptical of this arrangement, and rightly so. In a world where the median 2022 vintage fund has a DPI of precisely zero, those that deliver any capital stand out not because they're exceptional, but because they're doing what should be expected.

This early DPI milestone isn't a victory lap, it's a reminder of the standard we should hold ourselves to. We still have much to prove. The real test will be whether we can continue to build on this foundation, turning more of our portfolio into distributions that matter to our investors.

As I looked around the table at The Centurion last night, at faces I've known for three decades, I was reminded why these bonds have endured since that fall semester in 1992. Those fraternity brothers didn't stay in my life for 30 years because of potential, they stayed because they showed up, time and again. The same principle applies to our investors. They don't care about our potential returns; they care about what we've actually put back in their hands.

Cash is king in venture capital. And DPI is how the king's greatness is measured.

More to do.