Angel Investors Network
    Glossary

    Distribution

    The return of profits or capital to fund investors (limited partners) when portfolio companies are sold or generate liquidity events.

    Distribution refers to the return of capital and profits from a venture capital or private equity fund to its limited partners (LPs), typically occurring when portfolio companies are sold, go public, or generate other liquidity events. This is the mechanism by which investors realize returns on their committed capital, representing the actual cash flowing back into their pockets rather than unrealized paper gains.

    Why It Matters

    Distributions are the ultimate measure of a fund's success, as they represent real money returned to investors rather than theoretical valuations. While a fund manager may report impressive internal rates of return (IRR) based on mark-to-market valuations, LPs care most about actual cash distributions because these are the returns they can reinvest or use to meet their own obligations. The timing and magnitude of distributions directly impact an LP's overall portfolio performance and their ability to commit capital to future funds.

    Example

    A venture capital fund raised $100 million from its limited partners in 2018. By 2024, three of its portfolio companies have generated liquidity events. Company A was acquired for $50 million (the fund owned 20%, netting $10 million). Company B went public, and the fund sold its shares for $35 million. Company C was acquired for $15 million (the fund owned 30%, netting $4.5 million). After deducting management fees and carried interest, the fund distributed $38 million to its LPs. This represents a 38% distribution to paid-in capital (DPI) ratio—meaning LPs have received back 38 cents for every dollar they invested, with several portfolio companies still remaining in the fund that could generate additional distributions.

    Key related concepts include DPI (Distributions to Paid-In Capital), which measures the ratio of cash returned to investors versus capital called, Carried Interest, which is the profit share fund managers receive from distributions, and Liquidity Event, which describes the transactions that trigger distributions to limited partners.