The case for proactive DPI management
Venture capital has a DPI problem. The industry celebrates TVPI and paper multiples — but DPI, the only metric that reflects actual cash returned to LPs, lags badly at most funds. The secondary market has emerged as one of the most powerful tools available to GPs who want to change that. But most still treat it as reactive: something you do when a buyer shows up, not something you go looking for.
Proactive DPI management means running a regular portfolio review that asks a different question than most GPs ask. Not "is this company still doing well?" — but "is continuing to hold this position the highest-expected-value use of the LP capital tied up in it?" Every year a position is held, it must justify its IRR cost. Most don't survive that test as rigorously as GPs assume.
The secondary market doesn't just provide liquidity when you need it — it provides an ongoing mechanism for capital recycling when the IRR math on a holding no longer justifies the wait. A 5x return in 3 years (80% IRR) is worth far more than the same 5x in 8 years (22% IRR). The GP who systematically identifies and acts on that gap returns more DPI — even from the same portfolio.
Why proactive DPI management starts with the IRR cross-plot
The first step in any proactive DPI review is mapping every portfolio holding onto the IRR cross-plot — a visual of exit value versus time to exit, with IRR iso-contours overlaid. This immediately surfaces which positions are on a trajectory that justifies holding, and which have drifted into territory where the secondary market will generate more expected value than waiting.
The question is never "should I pursue a secondary?" in isolation. It is always: given the current IRR trajectory of this holding, does the secondary market offer a better expected outcome than the probability-weighted path to a traditional exit? That is a question you can answer with a framework. Most GPs answer it with gut feel.
Running that analysis requires three inputs for each position under review:
- The current marked value and implied MOIC from entry
- A probabilistic model of future exit outcomes (P10/P50/P90) calibrated to real data
- The opportunity cost — what does that capital do if recycled into the next deal?
Identifying secondary candidates in your portfolio
Module 8 of the VC Risk curriculum formalises this as a regular portfolio management practice — not a one-off exercise when a buyer appears. Every holding is mapped onto the IRR cross-plot on a quarterly cadence.
Positions in the "hold" zone — on a trajectory toward a high-IRR outcome within a reasonable time horizon — stay. Positions that have drifted into the "secondary candidate" zone — where the implied future IRR no longer clears the fund's hurdle rate — get escalated for active secondary exploration. This is the trigger for going to market, not waiting for an unsolicited offer.
A GP running proactive DPI management isn't asking "do I believe in this company?" They're asking "is holding this position the best use of this LP capital right now?" Those are different questions. The best GPs answer both — separately, and systematically.
Working the problem backwards from exit
Once a position has been flagged as a secondary candidate on the cross-plot, the decision tree takes over. You start at the terminal nodes — the range of plausible exit outcomes for this company, weighted by probability — and work backward to the present moment.
At each decision node, you compare the expected value of holding (Ps × P50 exit value, discounted for time) against the certain value of the liquidity offer available in the secondary market today. The framework forces you to be explicit about your assumptions on:
- Probability of survival to exit from the current stage (Ps)
- Expected time to exit given current trajectory
- The IRR cost of waiting — modelled as a function of holding period
- The Value of Information — what would need to be true to change the decision?
What this looks like in practice
A fund's quarterly cross-plot review flags a Series B position marked at $12M. The company is growing but trajectory analysis puts a traditional exit 4–5 years out at best. The GP goes to market — not because a buyer appeared, but because the framework flagged it. A secondary buyer comes back at $9M — a 25% discount to mark.
Without a framework, most GPs would never have gone to market in the first place — and if offered $9M would decline. "We'd be selling at a discount." But the decision tree says otherwise: the P50 hold scenario produces an IRR of 18% — below the fund's 25% hurdle. The secondary proceeds, recycled into a new position at higher expected IRR, generates more portfolio-level EV. The 25% discount to mark is not a loss. It is the rational choice.