Metrics & Performance
IRR
Internal Rate of Return — the annualized return on an investment, accounting for the timing of cash flows. Top-quartile VC funds target net IRRs above 20-25%.
IRR (Internal Rate of Return) is the annualized rate at which the present value of future cash flows equals the initial investment. Unlike simple multiples (which ignore time), IRR rewards returning capital faster. A 3x return in 2 years has a much higher IRR than a 3x return in 10 years. VCs target gross (pre-fee) IRRs of 30-40%+ at early stages; net (after fee and carry) IRRs of 20-25%+ are considered top-quartile. IRR can be calculated using Excel's XIRR function. Limitation: IRR can be manipulated by returning capital early. A fund that returns 1.5x in 2 years may show a better IRR than a fund that returns 3x in 8 years. This is why DPI, TVPI, and MOIC are evaluated alongside IRR.