Silicon Valley’s Fantastic ‘Dry Bubble’

By Jason Lemkin

The other day, Bill Gurley, who has to be on the Top 5 most successful and smartest VCs, had a few semi-cryptic tweets. Cryptic to non-VCs, at least.

But it’s very interesting, and here’s the actual data from Cambridge Associates (Thank You!), the leading industry analysts of VC data — albeit only through the end of ’12 (though as we’ll see below, nothing’s really changed since then):


There is even more VC industry lingo in here, but once you understand it, it’s quite interesting.

The top line, or “TVPI”, are paper mark-ups + cash back out (distributed capital). “DPI” on the bottom is just the actual cash back out. You can see the delta is quite, quite large.

What’s a paper mark-up? Well, some late-stage private market investor invests in my company at a $1 billion valuation. If I invested at a $10 million valuation, I get a 100x paper mark-up. I’m a hero at the firm. I brag. I run a pre-victory lap and tell myself how brilliant I am. That I see the future.


In this scenario, as brilliant as I look with my 100x mark-up…I’ve actually returned nothing in cash. No cash. Not a nickel. It’s a gain, yes — but on paper only. Until an IPO, or an acquisition, no cash goes back out. Sometimes a little goes back out in a so-called secondary sale, but even when it does, this is usually pretty small.

So the bottom line on this cash, DPI, is hard cash back out to the LPs.

And as you can see, there ain’t much cash going back out. In fact, DPI or “cash out” from VC funds hit rock bottom in ’12, and the gap between mark-ups and cash distributed is at an all-time maximum.


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