Unrealized IRR is an interim internal rate of return that blends actual distributions to date with the estimated value of holdings still in the portfolio — before those positions fully liquidate.

How it works

Fund IRR needs dated cash flows: capital calls out, distributions in. For active funds, much of the “return” sits in unrealized value — shares marked at the last financing round, secondary indications, or public comparables. Unrealized IRR treats those marks as if you received them today (or on a modeled exit schedule), then solves for the rate that equates flows.

Mid-fund life, unrealized IRR often looks attractive when a few portfolio companies reprice upward in hot markets. A markdown on one large holding can swing the entire fund metric. Realized IRR, by contrast, uses only cash returned — no marks. TVPI captures multiple on capital but ignores timing; IRR captures timing but is sensitive to mark assumptions.

GPs report net unrealized IRR in quarterly LP letters. Benchmark providers rank vintages using blended metrics until funds mature.

Why it matters

• Founders: Your round price affects an investor’s unrealized IRR on your cap table — reason to care about fair, defensible valuations, not only headline numbers.
• Investors: LPs use unrealized IRR for pacing and re-up conversations but anchor decisions on DPI and realized track record. Paper IRR that never converts to cash is a recurring VC disappointment.

Common mistake

Celebrating top-quartile unrealized IRR while DPI remains near zero — marks from insider rounds or optimistic 409A valuations may not survive the next down market or exit process.

Related ideas

See also IRR, unrealized value, TVPI, DPI, and write-down.