TLDR:
An in-kind distribution is the distribution of assets (stocks, property, goods) to investors or partners instead of cash, commonly used by investment funds when exiting positions in portfolio companies.
In-Kind Distributions in Venture Context
In venture capital, in-kind distributions (distributing shares rather than cash proceeds) occur most commonly when a portfolio company completes an IPO. Rather than selling all shares at the time of IPO and distributing cash, the VC fund may distribute shares directly to limited partners, allowing each LP to decide individually when to sell their position in the public market. This structure gives LPs flexibility and avoids the market impact of a large block sale, but it also passes the price risk to LPs post-distribution.