# What is Internal Rate of Return? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Metrics  
> **Canonical Citation:** [https://spidits.com/startup-glossary/irr](https://spidits.com/startup-glossary/irr)

## Definition
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).

## Architectural Mechanics & 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).

## Industry Applications & Real-World Use Cases
Time-weighted investment performance auditing

## Frequently Asked Questions

### 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.

### What is a typical target IRR for VCs?
Institutional LPs typically expect a VC fund to target a net IRR of 20% or higher.

## Related Terminology
- [moic](https://spidits.com/startup-glossary/moic)
- [tvpi](https://spidits.com/startup-glossary/tvpi)
- [hurdle-rate](https://spidits.com/startup-glossary/hurdle-rate)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*