Returns
MOIC vs IRR — and why a gross multiple lies
Two numbers describe a venture return, and memos routinely confuse them. MOIC tells you how many times your money came back. IRR tells you how fast. A "10× return" sounds identical whether it took 4 years or 14 — but as an annual rate those are wildly different investments. Worse, most reported multiples are gross: they ignore dilution and the preference stack. Here's how the two numbers relate, and how to stop being fooled by a headline multiple.
Textbook finance (MOIC, IRR). The conversion formula below is exactly what the kit's model uses.
What each one measures
- MOIC (multiple on invested capital)
= proceeds ÷ invested. Get $5M back on a $1M check and your MOIC is 5×. It says nothing about time. - IRR (internal rate of return) is the annualized compound rate that turns your investment into your proceeds over the holding period. For a single-in, single-out venture position it simplifies to:
IRR = MOIC^(1 ÷ years) − 1
That's the whole relationship. A 5× over 6 years is a 30.8% IRR; the same 5× over 12 years is only 14.4%. Same multiple, half the annual return.
The conversion, worked
| MOIC | 4 years | 6 years | 8 years | 10 years |
|---|---|---|---|---|
| 2× | 18.9% | 12.2% | 9.1% | 7.2% |
| 3× | 31.6% | 20.1% | 14.7% | 11.6% |
| 5× | 49.5% | 30.8% | 22.3% | 17.5% |
| 10× | 77.8% | 46.8% | 33.4% | 25.9% |
Read across any row: the multiple is fixed, but the annual return falls fast as the hold stretches. This is why a memo that quotes "10×" without a holding period is telling you almost nothing. A 10× in year 4 is a spectacular ~78% IRR; a 10× in year 14 is a pedestrian ~18%.
To back out the multiple you need to hit a target IRR: MOIC = (1 + IRR)^years. Want a 25% IRR over an 8-year hold? You need 1.25^8 ≈ 6.0×. That's a useful sanity check on whether a deal's plausible exit can clear your return bar at all.
Why "gross MOIC" is the number that lies
The bigger trap isn't time — it's that most quoted multiples are gross: exit value × your entry ownership, with no dilution and no preference stack. That's the number a copied memo reports, and it's almost always too high. The reconciled multiple carries the exit through your diluted ownership and subtracts senior preference first. At a modest exit, gross and net can point in opposite directions — a "1.6× win" on gross can be a 0.33× loss once the preference stack is paid.
Never report a MOIC without three things attached: the holding period (so it converts to IRR), the dilution assumed (so it's your real ownership), and the preference stack (so a low exit isn't secretly a loss). A multiple missing any of these is marketing, not analysis.
Convert your own multiple
Slide a MOIC and a holding period to see the implied IRR — using the exact MOIC^(1/years) − 1 the kit's model uses.
MOIC → IRR
Single-in, single-out annualized return.
Illustrative. This annualizes a single cash-in / cash-out; a fund's blended IRR across many timed cash flows is more involved, but per-position this is the right check.
Get the model that carries MOIC through to a defensible IRR.
The kit's cap-table / return sheet reports net MOIC and IRR across your exit scenarios — after dilution and the preference stack — plus the 8-section memo template, three worked memos, and the stage-weighted scorecard.