#175 VC DPI in Yr 5 - What Does It Mean?

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David Clark at VenCap shared the following earlier this week:

“DPIs - it takes 10-12 years for a company to go from being founded to IPO. Don't expect much DPI in the first 5 years of an early-stage fund's life. Also, liquidity in VC comes in waves. 2021 was one of these waves. So, no surprise later vintages are lagging on DPI.”

So we quickly looked at our data to see if DPI in year 5 is a good predictor of final performance. We analysed 71 funds from vintage years 2005-2008. The correlation between year 5 DPI and current DPI was just 0.22.

The best-performing fund in the sample has a DPI of 12.3x. In year 5 its DPI was zero. Conversely, the best-performing fund after 5 years had a DPI of 1.28x. It's now at 2.55x.

What About VC TVPI in Year 5 - What Does It Mean?

Jason Lemkin at SaaStr responded with the following:

“What about TVPI at Year 5?

Many these days complain both that there isn’t enough DPI, and TYPI is too inflated by unicorn valuations, etc.

I suspect the correlation is pretty high to terminal DPI but maybe I’m wrong.”

David Clark answered:

“Still finalising the numbers on this, but the first look suggests the correlation between TVPI at year 5 and DPI today for our 2005-2011 vintage funds (n=91) is around 0.4. Higher than DPI but still not a reliable predictor. Will post more once we've checked all the data.”

So What’s The Answer on Meaning of Yr 5 Metrics in VC?

They matter but they aren’t the end-all-be-all. Venture capital is a long game and each fund is 10-12 years (or more) before it’s done. A lot can happen in the second half of fund that renders those yr. 5 metrics less meaningfully than they appear! Happy hunting!

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