Jump to letterABCDEFGHIJKLMNOPQRSTUVWXYZ
    Returns & Fund Performance
    Advanced
    Global · Global

    IRR

    Also called: Internal Rate of Return

    TL;DR

    Internal Rate of Return, the annualized return that makes the net present value of all fund cash flows equal to zero.

    IRR is the time-weighted annualized return on an investment or fund. Unlike MOIC, IRR rewards returning capital quickly: doubling money in 1 year is a 100% IRR, while doubling money in 5 years is about 15%. LPs use IRR alongside MOIC because the same MOIC can imply very different actual investor experiences.

    IRR is sensitive to early distributions and to large recent marks. A fund that returns capital quickly through an early exit can show extraordinary IRR even if total MOIC ends up modest.

    Formula

    IRR = rate r such that Σ (Cash Flow_t ÷ (1 + r)^t) = 0
    • Cash Flow_t , Net cash flow in period t (negative for capital calls, positive for distributions)
    • t , Time index in years (or fraction of years) since fund inception

    IRR rewards early distributions; a 3.0× MOIC realized in 4 years has higher IRR than the same 3.0× realized in 10 years.

    Worked example

    Fund called $100M in year 1, distributed $50M in year 4 and $250M in year 7. Solving Σ CF/(1+r)^t = 0 yields IRR ≈ 19%, strong top-quartile performance for a vintage with that distribution shape.

    Common pitfalls

    • Comparing IRR across funds with very different durations.
    • Ignoring IRR's sensitivity to early distribution timing.
    • Treating IRR as the only metric instead of combining with MOIC and DPI.

    When this shows up in a pitch deck

    Fund-level metric; surfaces in founder context when discussing prior investor performance or expected return profile.

    See IRR in context

    IRR shows up most often in these scoring rubrics and investor profiles, jump straight to who cares about it and how to pitch them.

    Related terms

    Use IRR in your next pitch deck

    Deckmetric scores your pitch across 10 VC frameworks and against 8 investor types.