Fundamentals: the inputs to IRR and MOIC

You doubled your money. Was that a good investment?

It depends on how long it took. Turn $100 into $200 in two years and you have earned about 41% a year. Take ten years to get the same $200 back and you have earned about 7% a year.

That is the gap between the two headline numbers in this calculator. MOIC measures how much money comes back. IRR measures how fast it comes back. The same result can look strong on one and weak on the other.

Move the different dials below and watch both respond. A more detailed explanation is below the calculator.

Illustrative model

The calculator

Each control changes one variable and leaves the rest alone. The two figures update together, so the difference between them is visible as you move a single dial. Acme is invented and every figure is hypothetical.

1.91×

Money returned (net MOIC)

$477,500 back on $250,000

14%

Annualized return (IRR)

over 5 years

Exit valuation3×

What the whole company sells for, set here as a multiple of its revenue at exit.

1×8×

Years to exit5 yrs

Time until the company is sold or goes public.

210

Ownership dilution by exit50%

Later fundraising issues new shares, so your percentage shrinks. This dial also sets how much of the company those later investors end up owning.

0%70%

Try different future-financing terms

Future capital raised$20M

Total the company raises after this round. The tool assumes that money ranks ahead of you, so in a weak exit it can be paid out first. This dial and the dilution dial describe the same round, so dilution is what those investors bought: at zero dilution they bought nothing, there is no round, and nothing ranks ahead of you.

$0$80M

Future investors' liquidation preference1×

How many times their money future investors can take back ahead of you. 1× is the usual term. They take it only when it beats their share of the sale price.

1×3×

What a later preference does to your return

At a $90M sale, later investors do better taking their share of the price than taking their $20M back first, so they convert and their preference costs you nothing. Lower the exit valuation to find where it starts to bite.

Check our math

The model starts from the revenue the company is assumed to reach at exit, multiplies it by the revenue multiple you set to get the exit valuation, and then works out who gets paid in what order, which is called the liquidation waterfall. Later investors take whichever is worth more to them, their money back first or their share of the sale price, so which one happens follows the exit valuation rather than being chosen. The SPV then takes the greater of its ownership share or its own money back, and 20% carry is deducted from the gain over the full commitment. The money returned, or MOIC, is how many times that commitment comes back. The annualized return, or IRR, expresses the same result as a yearly rate over the hold period.

For Acme Corp, the assumed revenue at exit is $30,000,000 and the position is $250,000, of which about 95% buys shares after the one-time 5% fee. The liquidation preference attaches to the shares that money actually bought, so a 1× preference returns that smaller amount rather than the full commitment.

Every step, at the dial positions you have set

This is not a worked example typed in by hand. It is the same calculation the two figures at the top came from, one line at a time, run again at whatever position the dials are in right now, so moving any dial moves every line below it. It shows you the working rather than checking it: the lines come from the same model as the headline, so they cannot disagree with it and cannot confirm it either. The independent checks live in the verification brief.

Capital committed$250,000
What you put into the SPV.
One-time fee−$12,500
A one-time 5% of $250,000, taken once and never again.
Capital that bought shares$237,500
$250,000 less the fee.
Your ownership at entry1.19%
$237,500 buys shares in a company worth $20,000,000 the moment the round closes.
Your ownership at exit0.59%
1.19% less 50% issued to later investors.
What the company sells for$90,000,000
$30,000,000 of revenue at exit, sold for 3× that.
Paid out ahead of you$0
Nothing. Later investors own 50% of the company, worth $45,000,000 at this price, so they take that rather than their $20,000,000 preference.
Left to share$90,000,000
The whole sale price is shared out.
Your share, before carry$534,375
0.59% of $90,000,000. Your 1× preference would return $237,500, so taking your share is worth more.
Carry on the profit−$56,875
20% of the $284,375 above your $250,000. Never on the capital itself.
Money back to you$477,500
$534,375 less the $56,875 of carry.
Money returned (MOIC)1.91×
$477,500 divided by the $250,000 you committed.
Annualized return (IRR)13.8%
The annual rate that compounds $250,000 into $477,500 over 5 years.

Definitions and assumptions

What the calculator shows

Two numbers are commonly used to describe how an early-stage investment turned out. MOIC, the multiple on invested capital, is how many times the invested amount came back. IRR, the internal rate of return, expresses the same result as an annual rate. The two can differ substantially for the same investment, because IRR accounts for how long the money was held and MOIC does not.

The calculator shows how a few variables move each number. It uses an invented company and hypothetical terms. It is not a model of any real investment.

Acme Corp

Acme Corp is invented, and so is every figure attached to it. Two years ago it raised $500,000 from friends and family on a convertible note, which is a loan that turns into shares later rather than being paid back in cash.

It is now raising a seed round of $5M, its first priced round. The company is worth $15M before that money arrives, its pre-money valuation, and $20M once the round closes, its post-money valuation. An SPV, a pot of money set up to make one investment and nothing else, invests $250,000 of that round, which is 5% of the raise.

The $500,000 note converts into shares as part of this round, so it is counted inside the $20M and sits alongside everyone else's equity rather than being repaid first. Real notes usually convert at a discount or under a valuation cap and often accrue interest, which would hand the earlier lender more shares; this one is assumed to convert at this round's own price, with no interest, to keep the arithmetic followable. The SPV commits $250,000 against a $20M post-money valuation. If the whole commitment bought shares that would be 1.25% of the company, but a one-time 5% fee comes out of it first, so 95% of it reaches the cap table and the ownership actually acquired is 1.19%. That 1.19% is where every figure on this page starts, and the calculator shows what happens to it between the investment and an exit.

The model assumes Acme Corp reaches $30M of revenue by the time it is sold, and the exit valuation is set as a multiple of that figure.

The terms the model uses

Capital committed: $250,0005% of Acme's $5M seed round, through an SPV. This is the gross commitment, before the one-time fee; the row below shows what is left to buy shares.
Ownership at entry, before and after the fee: 1.25% / 1.19%$250,000 against a $20M post-money valuation would be 1.25% if all of it bought shares. The one-time 5% fee comes out of the commitment first, so the ownership actually acquired, and the only figure the model uses, is 1.19%.
Assumed revenue at exit: $30MThe revenue the model assumes Acme reaches. The exit valuation is a multiple of it.
SPV liquidation preference: 1×If the company is sold for a low price, a weak exit, the SPV can take its original investment back instead of its percentage share of that low price. That rule is the liquidation preference, and 1× means one times the money it put in. It buys a place in the queue, not a guarantee. The money comes out of the sale price, so if investors ahead of the SPV have already taken everything, a 1× preference returns nothing. Open the future-financing controls and set a large raise against a low exit to see it happen.
Carry: 20%Carry is the share of the profit the manager keeps. It applies to the gain only, never to your capital: on $150 coming back from $100 invested, carry is charged on the $50. The gain here is measured over the full $250,000 you committed, not over the smaller amount left after the fee, so paying the fee does not lower the bar the manager has to clear.
Ranking around the SPV: $0The earlier friends-and-family money converted into shares at this round, so nothing from before ranks ahead of the SPV. Anything the company raises later is assumed to rank ahead of it. That is the common case, and the harder one for you, but it is not universal: seniority is negotiated round by round, and later money sometimes ranks equally with earlier money instead.

Glossary

MOIC, the multiple on invested capital: How many times your money comes back. $200 back on $100 in is 2x. It says nothing about how long it took.
IRR, the internal rate of return: The same result expressed as a yearly rate, so it does account for how long the money was tied up. Doubling in two years is about 41% a year; doubling in ten is about 7%.
SPV, or special purpose vehicle: A pot of money set up to make one investment and nothing else. Investors put money into the SPV, and the SPV buys the shares on their behalf.
Management fee: What the manager charges to run the vehicle. RBV charges 5% once, taken out of your commitment before any shares are bought, which is why $250,000 committed buys $237,500 of stock.
Carry, or carried interest: The share of the profit the manager keeps. It applies to the gain only, never to your capital, and here the gain is measured over your full $250,000 commitment rather than the $237,500 that bought shares. The fee is a real cost to you, so it does not lower the bar the manager has to clear.
Exit: The event that turns shares back into cash: the company is sold, or it goes public. Until an exit happens, a gain on paper is not money anyone can spend.
Exit valuation, and the revenue multiple: What the whole company sells for. This tool sets it as a multiple of the revenue the company is assumed to have reached, because that is how buyers in many sectors price a business. A 3x multiple on $30,000,000 of revenue is a $90,000,000 sale.
Priced round: A fundraise where the company and its investors agree what the whole company is worth, which sets a price per share. Earlier money often arrives before any price has been agreed, which is what a convertible note is for.
Convertible note: A loan that turns into shares at a later priced round instead of being repaid in cash. Real notes usually convert at a discount or under a valuation cap, and often accrue interest, so the lender ends up with more shares than their cash alone would buy. This tool does none of that: it assumes the earlier note has already converted at this round's own price and is counted inside the post-money valuation, which keeps the arithmetic on the page followable.
Pre-money and post-money: What the company is worth before the new money arrives, and what it is worth after. The difference between the two is the amount raised.
Dilution: Your percentage of the company shrinking because the company issued new shares to someone else. Your shares are not taken away; there are simply more of them in total.
Liquidation preference: A rule about who gets paid first when a company is sold. An investor who has one can choose to take their money back instead of their percentage share of the sale price. It buys priority in the queue, not a guarantee: if the sale price runs out before the queue reaches you, a 1x preference returns nothing.
Preference seniority: Whose preference is paid first when more than one investor holds one. Later rounds are often, but not always, senior to earlier ones. This tool assumes the later round ranks ahead of the SPV, which is the common case and the harder one for you.
Participating and non-participating preferred: A non-participating investor picks one or the other: their money back, or their share of the sale. A participating investor takes their money back and then shares in what is left. Every holder in this tool is non-participating, which is the usual term in early-stage rounds and the gentler one for everybody else on the cap table.

Hypothetical and illustrative only – not a prediction, projection, or guarantee. Most early-stage investments lose money, and actual outcomes will differ; an investment may lose all of its value. Figures are shown after RBV's carry. This tool models the terms you select and does not capture every provision of a company's capitalization (option pools, debt, exact conversion terms, and future-round participation upside are not fully modeled). It is not an offer to sell or a solicitation to buy any security, and is not investment, legal, or tax advice.