Comparison
Realized Value vs Unrealized Value: Key Differences Explained
Realized value is the actual cash returned to investors from exits — the money is in the bank. Unrealized value (also called paper value or fair value) is the estimated current worth of investments that haven't yet been sold. Realized value is certain; unrealized value is an estimate that can increase or decrease until an exit proves what it's actually worth.
What is Realized Value?
Realized value is the cash (or liquid public shares) that have been distributed to investors from exited investments. When a portfolio company is acquired or goes public and VCs sell their shares, the proceeds become realized value — actual cash returned to LPs. DPI (Distributed to Paid-In) measures realized value: DPI = Total Distributions ÷ Called Capital. A DPI of 1.0x means LPs have received their original investment back in cash. Realized value is the gold standard of venture performance because it's actual, irrevocable returns. Top-tier VCs pride themselves on high DPI — it's proof of real returns, not just paper wealth. 'You can't eat IRR' is a VC saying that captures the importance of realized value over unrealized performance.
What is Unrealized Value?
Unrealized value (or residual value, or RVPI — Residual Value to Paid-In) is the current estimated fair market value of investments that are still held — companies that haven't exited yet. It's the 'paper value' of the portfolio. Unrealized value is inherently uncertain: it's based on last-round valuations, mark-to-model estimates, or comparable company analysis. A portfolio company valued at $1B in a 2021 round may be worth $300M in the 2024 market. Unrealized value is real until the exit proves it — and exits often come in below the last private market valuation. TVPI = (Realized + Unrealized) ÷ Called Capital. High TVPI with low DPI means most value is still unrealized — a common situation for younger or 2021-vintage funds.
Key Differences
| Feature | Realized Value | Unrealized Value |
|---|---|---|
| Certainty | Certain — cash already returned | Estimate — depends on future exit prices |
| Metric | DPI (Distributed to Paid-In) | RVPI (Residual Value to Paid-In) |
| When it appears | After company is acquired or IPOs (and shares sold) | Before company exits — mark-to-market estimate |
| LP preference | Preferred — actual liquidity | Used for portfolio monitoring, not true returns |
| Manipulation risk | None — immutable cash flows | High — can be inflated via generous valuations |
| Effect on TVPI | Part of numerator; can only increase | Part of numerator; can go up or down |
When Founders Choose Realized Value
- →LP reporting and fund performance evaluation
- →Assessing whether a fund's returns are real vs. paper
- →Choosing between VC managers based on actual exit track records
When Founders Choose Unrealized Value
- →Quarterly portfolio monitoring before exits
- →TVPI calculation when fund has significant unrealized portfolio
- →Mark-to-market accounting for fund financial statements
Example Scenario
Fund I has called $100M and returned $80M in cash from three exits (DPI 0.8x). The remaining portfolio has an NAV of $120M (RVPI 1.2x). TVPI = ($80M + $120M) ÷ $100M = 2.0x. At fund dissolution 3 years later, the remaining portfolio is worth $60M (down from $120M — unrealized estimates were too optimistic). Final DPI = ($80M + $60M) ÷ $100M = 1.4x. The 2.0x TVPI was misleading because unrealized value was overstated. The only number that mattered in the end: $1.40 cash for every $1 invested.
Common Mistakes
- 1Treating TVPI as final fund performance when most of the value is unrealized
- 2Inflating unrealized value by using 2021 peak valuations for portfolio companies that haven't exited
- 3LPs not asking for DPI separately from TVPI — they're very different numbers with different reliability
- 4GPs not disclosing markdown risk on unrealized portfolio when fundraising for their next fund
Which Matters More for Early-Stage Startups?
Realized value always wins — it's the only thing that matters at fund dissolution. Unrealized value is important for tracking but should be treated as an estimate with a wide confidence interval. As a GP, optimize for real exits and real DPI. As an LP, demand transparency on the gap between TVPI and DPI.