Distribution is the moment a fund actually returns capital to its limited partners—turning a portfolio mark into cash (or sometimes public stock) in an LP’s account.

How it works

When a portfolio company exits—IPO, acquisition, secondary sale, or dividend—the general partner allocates proceeds according to the limited partnership agreement. After returning contributed capital and applying the waterfall (preferred return, catch-up, carried interest), the GP wires the LP’s share.

Example: a VC fund invested $10M in a startup and sells its stake for $40M. After fees, carry, and any return of prior capital calls, the fund might distribute $30M to LPs pro rata by commitment. Each LP receives their percentage of that pool.

Distributions can be interim (partial sale, dividend recap) or final (full exit). Some funds also distribute public stock after an IPO; LPs may hold or sell.

Why it matters

• Founders: An exit that triggers distributions is a real liquidity event. Understand whether your investors are distributing because they sold primary shares, secondary, or the whole company—it affects signaling and relationship dynamics.
• Investors (LPs): Distributions drive DPI and cash-on-cash returns. A fund with high TVPI but zero DPI has not yet proven it can return money.
• GPs: Distribution pace affects fundraising for the next fund. LPs want to see a track record of returning capital, not just marking up positions.

Common mistake

Confusing distribution with capital call. A capital call is money flowing into the fund from LPs; a distribution is money flowing out. They move in opposite directions.

Related ideas

• DPI — distributions divided by paid-in capital
• Distribution in Kind — returning stock instead of cash
• Carried interest — GP’s share before LPs receive full distributions
• Waterfall — the payout order in a fund