What is Internal Rate of Return?
Internal Rate of Return
Internal Rate of Return (IRR) is the annualized rate of return earned on investments, factoring in the specific timing of all cash flows (drawdowns and distributions).
Why It Matters for Startups
Essential for navigating early-stage business execution; mastering Internal Rate of Return allows founding teams to scale operations, manage risk, and optimize efficiency for time-weighted investment performance auditing.
Detailed Deep Dive
Internal Rate of Return (IRR) is the annualized rate of return earned on investments, factoring in the specific timing of all cash flows (drawdowns and distributions).
Frequently Asked Questions
Q:Why is timing important in IRR?
Returning $10M in Year 2 yields a significantly higher IRR than returning $10M in Year 8, due to the time value of money.
Q:What is a typical target IRR for VCs?
Institutional LPs typically expect a VC fund to target a net IRR of 20% or higher.
Quick Facts
- CategoryMetrics
- Key ApplicationTime-weighted investment performance auditing
Coverage Trend12 Weeks
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