IRR

The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of all cash flows from an investment equals zero. In private equity and venture capital, IRR is the primary metric for measuring fund and deal performance — it accounts for both the magnitude of returns and the time value of money. A typical buyout fund targets a gross IRR of 20-25%+. IRR is highly sensitive to investment timing: early exits boost IRR disproportionately (the 'J-curve' effect). IRR can be gamed by recycling capital or using NAV-based credit lines. For this reason, sophisticated LPs also evaluate MOIC (Multiple on Invested Capital) alongside IRR.

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