VC Mark-Up Culture: How Paper Gains Distort Fund Performance Reporting

LP distributions fell to roughly 6% of assets under management in the 12 months through mid-2025, versus a 14% ten-year average, even as top-quartile VC funds continued reporting 3.0x+ TVPI. That's the short answer. The longer answer is that the gap between what funds report and what LPs actually collect in cash has become the defining credibility problem in venture capital.

Every quarterly capital account statement an LP receives contains two very different numbers dressed up as one performance story: cash that has actually been wired back, and a GP's estimate of what illiquid stakes are worth today. The industry has spent a decade treating those as roughly interchangeable. In 2026, with distributions at their lowest recorded level in years, LPs have stopped pretending they are.

How VC Mark-Up Valuation and Paper Gains Distort Fund Reporting

VC mark-up valuation practices let a GP set a portfolio company's reported value based on its own judgment — usually anchored to the price of the most recent financing round, a comparable public multiple, or a periodic internal model — rather than any actual sale. That estimate flows directly into TVPI and IRR, so a GP who marks a position at 3x cost after a hot follow-on round generates a strong headline return on paper long before a single dollar reaches an LP's account.

The mechanical result: IRR and TVPI are both heavily influenced by unrealized marks that involve substantial GP discretion, while DPI (Distributions to Paid-In) is the one metric in the standard reporting stack that is completely insulated from that judgment. A fund can report a 2.0x TVPI built almost entirely from 1.7x of unrealized value and 0.3x of actual distributions, or a 2.0x TVPI built from 0.5x unrealized and 1.5x distributed — same headline number, fundamentally different risk to the LP holding it.

TVPI vs DPI: Why the Gap Is the Real Story in 2026

Top-quartile VC funds benchmark at 3.0x+ TVPI and 25%+ net IRR by year 7, but median DPI for those same top-quartile funds sits at roughly 1.5x, while the median fund overall returns just 0.7x DPI at year 8 — meaning half of all capital committed to venture funds at that maturity has still not come back as cash. That's not a rounding error; it's the structural consequence of a decade where marking a position up was easy and converting it to cash, through an IPO or acquisition, has been unusually hard.

The 2021-2022 vintage made this gap impossible to ignore. Funds from that era reported strong unrealized marks through 2022 and 2023, several of which were subsequently written down once follow-on rounds or secondary transactions revealed the earlier marks had been too optimistic. LPs who committed capital expecting a normal J-curve are, four to five years later, still sitting on portfolios of unrealized positions valued at marks many of them privately question.

Fund Performance Reporting: TVPI, DPI, and RVPI Compared

The table below breaks down the three metrics that make up standard VC fund performance reporting — what each one measures, how much GP discretion is involved in setting it, and why LPs weight them differently in 2026 than they did five years ago.

Figures are 2025-2026 estimates blended from Cambridge Associates 2026 Outlook, Carta VC Fund Performance (Q1 2026 and Q3 2025), and Coller Capital LP survey data. Benchmarks reflect top-quartile funds at 7+ years of age unless noted.

Why LPs Are Prioritizing DPI Over TVPI in 2026

A Coller Capital survey of 300 LPs now places DPI alongside MOIC as the second-most-important metric in new fund commitments, right behind IRR — a meaningful shift from a few years ago, when TVPI and paper markups dominated re-up conversations. The reason is mechanical: DPI is the only number on a capital account statement that cannot be inflated by a generous mark, because it only counts cash that has physically moved.

That shift is also visible in how LPs read exit data. Most of the realized cash flowing through fund distributions in recent quarters has come from a small number of large exits — stripping out just the five largest deals in a given period cuts reported distributions by more than 70% and DPI by a similar magnitude, according to Cambridge Associates analysis. That concentration means a single fund's DPI can look dramatically different depending on whether it happened to hold one of those handful of winners, which is exactly why LPs increasingly ask GPs to show the distribution of outcomes across the whole portfolio, not just the blended average.

For the full benchmark tables on where funds actually land by vintage year, see our post on top-quartile VC returns and what IRR, TVPI, and DPI look like at the top, or track live fund data on our VC performance dashboard.

What Drives a Bad Mark-Up: Three Patterns LPs Have Learned to Watch For

First, the "last-round anchor" problem: a GP marks a position at the price of its most recent financing and simply holds that mark for multiple quarters, even as public comparables and macro conditions shift, because there's no new priced event forcing a revision. Second, the "insider round" problem: some 2022-2024 bridge and inside rounds were priced by existing investors partly to avoid a down-round mark on their own books, which quietly resets the cost basis without validating the price against a real third party.

Third, the "portfolio company self-selection" problem: GPs naturally have more visibility into, and more incentive to mark up, their winners, while struggling companies get marked down more slowly and disclosed less proactively, producing an asymmetric bias toward optimism across a fund's reported NAV. None of these three patterns require bad faith — they emerge from a marking process built on judgment rather than transaction prices, which is precisely why the process is vulnerable to them.

I've sat on both sides of this table — as a GP reporting marks to my own LPs and as an LP evaluating other funds — and the single most useful question I've found is simple: has this specific mark changed in the last two quarters, and if not, why not. A static mark through a period of real market movement is rarely a coincidence, and asking to see the marking methodology memo for a fund's five largest positions will tell an LP more in ten minutes than a full quarter of narrative commentary in a capital account letter.

How Founders Should Think About This as LPs Get More Skeptical

Founders don't file capital account statements, but the mark-up culture still shapes the capital environment they raise into. GPs under pressure to show DPI, not just TVPI, have gotten more selective about which companies they'll continue funding through extensions, because every additional dollar into a company that never converts unrealized value into cash makes the fund's DPI problem worse, not better.

That means founders should expect more diligence on a realistic path to a cash-generating exit — an IPO, acquisition, or secondary sale — earlier in the relationship, not just growth metrics that support another markup. A GP who can only point to your company's rising 409A or last-round valuation, without a credible liquidity story attached, is increasingly aware that a paper win doesn't solve their own DPI problem with their LPs.