The first multiples metric is the total value to paid in capital or TVPI, which is also known as the cash on cash or CoC multiple.
This metric measures the total value of the VC funds investments, both realized and unrealized, divided by the capital that has been called up or paid in to the VC fund by the LPs.
A number greater than one suggests a profitable investment for the LPs, and conversely, a number less than one would imply a loss.
Unlike the IRR, however, this metric does not factor in the time value of money.
For example, if an investment of 1000 resulted in $4,000 being realized at the end of the investment's life, the TVPI would be four times.
The main strength of the TVPI is in its simplicity.
However, the main drawback of this measure is it doesn't take time into account.
If TVPI in the previous example would be four times whether the investment was realized over a three year or a five year investment horizon, the longer it takes to realize an investment, the lower the effective return per year.
This is picked up by the IRR, but not by TVPI.
The multiple on invested capital measures the value of an investment, both realized and unrealized and devised this by the amount invested.
This is very similar to the total value to paid in capital Metric and both the MOIC and TVPI are widely used multiple base metrics for which the formula does appear to be very similar, but it's important to understand the distinction.
This is in the denominator.
The MOIC divides the total value of the investment or VC fund by the initial investment, whereas the TVPI divides the total value of the investment or VC fund by the paid in amount by the LPs paid in capital refers to payments made from the investors to the fund.
Whereas invested capital is money that has been paid from the fund to investment companies in making an investment.
When a VC fund is fully funded and all capital calls have been met, then TVPI will equal MOIC.
But when investors paid in capital has not yet been fully invested into underlying investment companies, the TVPI will be lower than the MOIC because not all of the capital paid in will have become invested. Capital, meaning paid in capital will be higher than invested capital.
And since these are the denominators in the formula, the TPI will be lower than the MOIC.
In this example, the portfolio value is one 20, and although 100 of capital has been paid into the fund by VC investors, only 90 of the 100 has been invested into buying up startup companies.
In this scenario, the TVPI will be 1.2, but the MOIC will be 1.3.
The third multiples metric is the distributions to paid in capital or DPI multiple, which measures how much money the VC fund has paid back to the LPs divided by the amount of capital that the LPs have paid into the fund.
The denominator is the same as the TVPI formula, however, unlike TVPI, this only considers realized investments or those which have had an exit or liquidity event.
