Is TVPI the Same as MOIC? Key Differences Explained

Performance metrics are fundamental tools for evaluating investment strategies, especially in private equity and venture capital. These sectors involve long-term investments in private companies, requiring robust measures to gauge financial success and capital efficiency. Various metrics provide different perspectives on an investment’s or fund’s performance, helping stakeholders understand value creation.

Understanding Total Value to Paid-In (TVPI)

Total Value to Paid-In (TVPI) is a performance metric used in private equity and venture capital to assess a fund’s performance. It quantifies the total value generated by a fund in relation to the capital contributed by its limited partners (LPs). This metric provides investors with a view of their investment’s worth.

The calculation of TVPI involves two main components: “Total Value” and “Paid-In Capital.” Total Value encompasses both realized gains, which are distributions already made to investors, and the current market value of remaining, unrealized investments still held by the fund. Paid-In Capital represents the cumulative amount of money that investors have actually contributed or “called” into the fund since its inception.

The formula for calculating TVPI is:
TVPI = (Cumulative Distributions + Residual Value) / Paid-In Capital

For example, if a fund has $50 million in paid-in capital, distributed $12 million, and its remaining investments are valued at $45.5 million, the TVPI is calculated. The total value is $12 million plus $45.5 million, equaling $57.5 million. Dividing $57.5 million by the $50 million paid-in capital yields a TVPI of 1.15x. A TVPI greater than 1.0x indicates the fund generated more value than the capital invested, suggesting a positive return.

Understanding Multiple on Invested Capital (MOIC)

Multiple on Invested Capital (MOIC), also known as Multiple-on-Money (MoM) or Cash-on-Cash Return, is another performance metric used in private markets. This metric measures the gross return on capital deployed into a specific investment or a portfolio. It indicates how many times the initial capital invested has been returned or grown.

The components of MOIC include the “Total Value” generated by the investment and the “Invested Capital.” The Total Value comprises both realized cash inflows from exited investments and the current market value of any remaining unrealized investments. Invested Capital refers to the actual amount of capital that was initially deployed or invested into the asset or project.

The formula for MOIC is:
MOIC = Total Cash Inflow / Total Investment Amount

As an example, if a private equity firm invests $50 million into a company and later exits for $150 million, the MOIC is 3.0x. This indicates the investment generated three times the initial capital deployed. A MOIC below 1.0x signifies the investment has not recouped its initial capital, resulting in a loss.

Distinguishing TVPI from MOIC

While both Total Value to Paid-In (TVPI) and Multiple on Invested Capital (MOIC) are important metrics in private markets, they are not interchangeable, serving distinct purposes in performance evaluation. Both metrics express value creation as a multiple of capital, encompassing realized and unrealized gains. Their core difference lies in the capital base used in their respective denominators.

TVPI utilizes “Paid-In Capital” as its denominator, which represents the total capital contributed by limited partners (LPs) to the fund over time, including all capital calls. In contrast, MOIC uses “Invested Capital,” which refers to the specific amount of capital actually deployed by the fund into a particular asset or portfolio company. This distinction means TVPI provides an investor-centric, fund-level view, reflecting the overall efficiency of an LP’s commitment to the fund. MOIC, conversely, offers a deal-level or gross fund-level perspective, often used by general partners (GPs) to evaluate the performance of specific assets or the capital deployed.

The scope of these metrics also differs. TVPI is a fund-level metric, offering limited partners an overview of the total value generated relative to their contributions. MOIC can be applied at the individual deal level, allowing for a direct assessment of the gross return on capital invested in a single company or project. While MOIC focuses on gross return, excluding fund-level fees, TVPI is often reported net of management fees and carried interest, providing a more direct reflection of an LP’s actual return.

Applications of TVPI and MOIC

The distinct applications of TVPI and MOIC highlight why both metrics are necessary for understanding private market investment performance. TVPI is valuable for limited partners (LPs) as they assess their overall return from a private equity or venture capital fund. It provides a view of the fund’s total value creation, including distributed cash and the current value of remaining investments, relative to the capital committed. LPs use TVPI to benchmark a fund’s performance against peers and to understand the capital efficiency of their investment over its lifecycle.

MOIC, conversely, is an important metric for general partners (GPs) and fund managers when evaluating the success of individual portfolio company investments. It helps them compare the gross performance of different deals and assess the effectiveness of their investment strategies at the asset level. Internal investment committees frequently rely on MOIC to review the profitability of specific capital deployments.

Using both TVPI and MOIC together offers a more complete picture of investment performance. TVPI provides insights into the overall fund performance from the limited partner’s perspective, reflecting the total value generated from their contributions. MOIC provides a snapshot of the gross capital appreciation from specific investments, making it ideal for evaluating individual deals. This dual approach allows stakeholders to understand both the overall fund health and the underlying drivers of value creation within the portfolio.