Metrics & Performance
Internal Rate of Return (IRR)
The annualized return rate that makes the net present value of all cash flows equal to zero — the standard VC performance metric.
Internal Rate of Return
0 = Σ CFt / (1 + IRR)^t
Where
- CFt
- = Cash flow at time t
- IRR
- = Discount rate that makes NPV equal to zero
- t
- = Time period
IRR measures the annualized percentage return on invested capital, accounting for the timing of cash flows. A fund that returns 3x in 5 years has a higher IRR than one returning 3x in 10 years. Top-quartile VC funds target 25%+ net IRR.
In Practice
The fund invested $10M in 2020, received $5M from an early exit in 2023, and the remaining portfolio was valued at $40M in 2026 — generating a 45% gross IRR.
Why It Matters
IRR is the primary metric LPs use to compare VC fund performance. It penalizes slow deployment and long holding periods, creating urgency to return capital efficiently.
VC Beast Take
IRR is the metric that keeps GPs honest about time. A 10x return sounds great until you realize it took 15 years. IRR is the alarm clock of venture capital.
Further Reading
Building a Venture Capital Track Record From Zero
How emerging fund managers build a credible VC track record from scratch — angel investing strategies, attribution frameworks, and the path from first check to Fund I.
How Venture Capital Returns Actually Work
Most VC funds lose money. The ones that don't rely on a brutal math equation most LPs barely understand. Here's how the power law really plays out.
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