About IRR and MOIC for Startup Investments
IRR (Internal Rate of Return) is the annualized compound return that equates your initial investment to the exit proceeds over time. It is the primary performance metric used by venture capital funds and angel investors. MOIC (Multiple on Invested Capital) measures the simple ratio of exit value to invested capital โ a 5x MOIC means you received $5 for every $1 invested.
The formula is: IRR = (Exit Value รท Investment)^(1 รท Years) โ 1. These two metrics must be read together: a 3x MOIC in 3 years (IRR ~44%) is far better than a 3x in 8 years (IRR ~15%). Top VC funds typically target 20โ30%+ IRR over a 10-year fund life.
Frequently Asked Questions
Yes. If your exit value is less than your investment, IRR is negative โ meaning you lost money on an annualized basis. MOIC below 1x also indicates a loss.
Simple ROI ignores time. A 200% ROI over 2 years (IRR ~73%) is very different from 200% over 10 years (IRR ~15%). IRR lets you compare investments with different durations.