Paid-in capital

Key takeaways

• A paid-in capital is the actual amount of money transferred to a private equity fund by a limited partner (LP).
• The term is also known as paid-in capital or contributed capital.
• It is paid over time through capital calls, not as a single upfront payment.
• It is distinct from committed capital, which refers to the total amount the LP has pledged to a fund.
• Understanding capital contributions is essential for interpreting private equity fund cash flows, calculating Internal Rate of Return (IRR) and other performance metrics like Total Value to Paid-In Capital (TVPI) and Distributed to Paid-In Capital (DPI).

What are capital contributions in private equity?

A capital contribution refers to the portion of an LP's committed capital that has actually been transferred to a private equity fund, or “drawn down”. Rather than paying the entire committed amount upfront, LPs contribute capital over time as requested by the fund manager through a series of capital calls.

These capital calls are typically made when the GP identifies investment opportunities or needs funds for fees, expenses or follow-on investments. As a result, capital contributions are spread out over the fund’s investment period—usually the first 3–5 years of its life.

The term is used interchangeably with paid-in capital and contributed capital and is one of the most important numbers LPs track throughout the life of a fund.

Capital contribution vs. committed capital

A common source of confusion in private equity is the distinction between capital contributions and committed capital.

• Committed capital: The total amount the LP agrees to invest in a fund over its life.
• Capital contribution: The portion of that commitment that has already been funded.

The gap between these two amounts is known as the unfunded commitment—the remaining amount that the LP is still obligated to contribute if and when called upon by the GP.

For example, if an LP commits €10 million to a fund but has only transferred €4 million to date, the capital contribution is €4 million and the unfunded commitment is €6 million.

This phased funding model helps LPs manage their liquidity and allows GPs to call capital only when it’s needed to fund deals.

How capital contributions affect fund performance

Capital contributions are central to performance measurement in private equity. Most fund-level metrics rely on an accurate understanding of the timing and amount of capital contributed.

• IRR is calculated using the exact dates and sizes of capital contributions and distributions. The later the capital is called, the more favourable the IRR, assuming returns are the same.
• TVPI measures the fund’s total value (residual plus distributions) divided by the total capital contributed.
• DPI shows how much cash has been returned to the LP relative to their contributions.

Since contributions typically occur over several years, the timing of capital calls affects returns. A delay between the initial commitment and the actual contribution means that money remains with the LP longer, potentially earning returns elsewhere—but also delaying the start of the fund’s return clock.

Capital contributions also inform cash flow reporting, providing visibility into how much LPs have invested and how much they’ve received back. Accurate tracking helps LPs assess the fund’s progress, liquidity needs and performance relative to benchmarks.

Capital contribution, or paid-in capital, is therefore a foundational concept in private equity investing. Understanding how and when capital is contributed is crucial for fund monitoring and making informed investment decisions.