IRR Beats MOIC as the Best VC Fund Performance Metric

Is MOIC an illusion?

AKA - what is the best way to judge a venture fund?

IRR, TVPI, RVPI, MOIC, DPI...they can all illuminate different parts of the return profile.

But I kinda agree with Gokul Rajaram (who Harry is quoting in the post above). IRR matters more, in the end.

Why?

• MOIC and IRR can both be used to measure fund performance. Whereas MOIC measures returns against paid-in capital at a certain point in time, internal rate of return (IRR) accounts for 𝘁𝗵𝗲 𝘀𝗽𝗲𝗲𝗱 𝘁𝗵𝗲 𝗳𝘂𝗻𝗱 𝗶𝘀 𝗮𝗯𝗹𝗲 𝘁𝗼 𝗮𝗰𝗾𝘂𝗶𝗿𝗲 𝘁𝗵𝗼𝘀𝗲 𝗿𝗲𝘁𝘂𝗿𝗻𝘀.

• LPs prefer a return sooner rather than later, so an investment that secures a 10x return within five years is better than one that takes 10 years to secure the same return.

In a world where venture companies are staying private MUCH longer than before, time matters. Money back today is worth more than money (uncertain money at that!) back tomorrow.

Perhaps this means GPs should sell more along the way, or potentially invest in different kinds of companies, or at the very least review the follow-on strategy.

But time matters.

If you're looking for the freshest, non-GMO, farm-to-table venture data, congrats: we just released our VC Fund Performance Report covering data through the end of last year. Read it now - https://lnkd.in/gxCSfscD

Happy benchmarking!