MOIC

How MOIC works

MOIC is a ratio with no adjustments in it. Add up what an investment is worth, including what has already been received in cash and what is still held at fair value, and divide by what was put in.

The formula in words: total value, realized plus unrealized, divided by invested capital.

As symbols:

MOIC = (realized proceeds + unrealized value) / invested capital

A MOIC of 1.0x means the money is back and nothing more. A MOIC of 0.4x means sixty percent has been lost. A MOIC of 12x means twelve dollars of value for each dollar invested.

Three decisions change the number, and none of them is visible in the figure itself.

The level. Deal-level MOIC measures one position against the capital invested in that position. Fund-level MOIC measures the whole portfolio. A manager's deal-level multiples can be strong while the fund multiple is ordinary, because fund-level arithmetic includes the positions that failed and the capital that paid fees.

Gross or net. Gross MOIC is measured before fund management fees, partnership expenses and carried interest. Net is after. Invest Europe's reporting guidelines make the convention explicit: fund-level metrics are presented net of fees and carry, while portfolio-level MOIC is shown gross of all fees and expenses. The gap between the two over a fund's life is substantial and is exactly the fee load.

Realized or total. Total MOIC includes unrealized carrying value. Realized MOIC counts only cash actually received. A track record showing 4.2x where three quarters of the value is unrealized is a forecast wearing the clothes of a result.

MOIC sits inside a family of related measures that are worth distinguishing precisely, because they are constantly confused.

• MOIC. Total value over invested capital. Usually deal-level, usually gross. No time dimension.
• TVPI. Total value over paid-in capital, fund-level, net. Paid-in capital includes capital called to pay fees, so the denominator is larger than invested cost.
• DPI. Realized distributions over paid-in capital. Fund-level, net, cash only.
• RVPI. Unrealized fair value over paid-in capital. Fund-level, net. TVPI equals DPI plus RVPI.
• IRR. The discount rate that sets the net present value of the cash flows to zero. Adds time, which MOIC lacks.

The relationship between MOIC and IRR is the reason both are quoted. MOIC says how much. IRR says how fast. A 2.0x over two years is roughly a 41 percent annualized return; the same 2.0x over eight years is roughly 9 percent. Conversely, a high IRR earned on a small amount of money for a short period can be almost irrelevant to a fund's outcome, while a moderate IRR on a large position held for a decade can be the fund. Reading either alone produces a wrong conclusion about half the time.

For a single cash flow in and out, the relationship is exact:

IRR = MOIC raised to the power of (1 divided by years held), minus 1

Real positions have multiple cash flows, so that identity is an approximation, but it is a useful sanity check on any pair of numbers presented together.

Worked example

Compare three positions in the same hypothetical fund. All figures are hypothetical.

Position A. Invested $4,000,000 in a Series B. Sold three years later for $14,000,000, all cash. MOIC is 14 divided by 4, which is 3.5x, entirely realized. Approximate IRR: 3.5 to the power of one third, minus 1, which is about 52 percent.

Position B. Invested $4,000,000 across a seed and two follow-ons over four years. The company listed in year nine and the stake was distributed for $30,000,000. MOIC is 30 divided by 4, which is 7.5x. Approximate IRR, treating it as a single nine-year hold: 7.5 to the power of one ninth, minus 1, which is about 25 percent.

Position C. Invested $9,000,000 in a growth round. Eighteen months later the company was acquired for a price returning $12,600,000. MOIC is 1.4x. Approximate IRR: 1.4 to the power of one over 1.5, minus 1, which is about 25 percent.

Read across them. Position C has the same approximate IRR as position B and produced $3,600,000 of gain against $26,000,000. Position B produced $26,000,000 of gain and is the reason the fund works. Position A has the highest IRR of the three and produced $10,000,000. Ranking by IRR puts A first; ranking by dollars of gain puts B first by a wide margin. MOIC times dollars invested is what actually shows up in a distribution.

Now aggregate to the fund. Suppose the fund invested $100,000,000 of cost across twenty positions and the three above are the only ones with gains. Total value: $14,000,000 plus $30,000,000 plus $12,600,000 from these three, plus $8,000,000 of recovered value from the remaining seventeen. That is $64,600,000 against $100,000,000 of invested cost, a gross fund MOIC of 0.65x.

The point of that last step is the gap between the deal page and the fund page. A tear sheet showing 3.5x, 7.5x and 1.4x is accurate and tells the reader nothing about the fund, which lost money. Any MOIC presented without the full portfolio behind it is a selection, not a record.

Finally, convert to the fund-level net figure. If the fund had $130,000,000 of commitments and called $120,000,000, including $20,000,000 of fees and expenses, then paid-in capital is $120,000,000 and TVPI is $64,600,000 divided by $120,000,000, or 0.54x. Gross deal MOIC of 0.65x becomes a net fund multiple of 0.54x, and the difference is the fee load. That is the whole reason the label on a multiple matters.

Where it shows up

In the schedule of investments attached to quarterly limited partner reporting, each position is listed with its invested cost, realized proceeds, current fair value, total value and a gross multiple. That multiple is the deal-level MOIC. The ILPA Reporting Template standardizes the surrounding fee, expense and offset disclosure so that the fund-level net figures can be reconciled against these gross position-level numbers.

In the performance summary of the same report, the fund-level figures appear instead: net DPI, RVPI, TVPI and net internal rate of return, defined as Invest Europe's reporting guidelines set them out, on a net basis against paid-in capital where paid-in capital is committed capital that has actually been called.

In a fundraising deck or private placement memorandum, MOIC appears in the track record table, usually by position and usually gross, sometimes split into realized and unrealized columns. The relevant diligence questions are whether the table includes every position, what the fund-level net multiple is, and how much of the total value is marked rather than received.

In the valuation policy referenced by the limited partnership agreement, the unrealized half of MOIC is governed: how fair value is determined, what evidence supports a markup, how often marks are refreshed, and who reviews them. Two managers with identical portfolios and different valuation policies will report different MOICs.

In carried interest calculations, MOIC frequently appears as a trigger rather than a report. ILPA's fund terms survey notes waterfalls with carried interest rates that step up once investors achieve a stated return, for example a 20 percent rate rising to 25 percent once investors receive distributions equal to three times their contributions, which is a MOIC condition expressed in the distribution waterfall.

In benchmark reporting, Cambridge Associates ranks funds within vintage year by internal rate of return and by multiples, which is the comparison that holds both fund age and market conditions constant.

Common mistakes

Comparing a gross MOIC to a net multiple. Deal-level gross figures exclude management fees, expenses and carry. Setting them against a net benchmark or against another manager's net TVPI is not a comparison at all.

Ignoring how much is unrealized. A high MOIC composed mostly of carrying value is a valuation opinion. The realized portion is the part that has been proven.

Treating MOIC as a substitute for IRR. MOIC has no time in it. A 2.5x over three years and a 2.5x over twelve are the same number and completely different investments.

Treating IRR as a substitute for MOIC. A very high IRR on a small, fast position contributes little in dollars. Funds are returned by large multiples on meaningful amounts of capital, not by short-duration percentages.

Aggregating deal MOICs by averaging them. The arithmetic mean of position multiples is meaningless. The fund multiple is total value over total invested capital, which weights by dollars.

Using invested cost as the denominator for a fund-level figure. Fund multiples are measured against paid-in capital, which includes capital called for fees and expenses. Substituting invested cost inflates the result.

Quoting MOIC on a partially realized position without splitting it. Showing 3.5x when 1.5x is realized and 2.0x is a mark hides where the burden of proof sits.

Related terms

MOIC is the deal-level, usually gross cousin of TVPI, which is the fund-level net multiple; its realized half corresponds to DPI and its unrealized half to RVPI. It is always read next to IRR, which supplies the timing MOIC omits, and its reported path over a fund's life is the J-curve. Where a multiple threshold is written into the economics, it appears in the distribution waterfall and can change the carried interest rate.

Frequently asked questions

What is the MOIC formula?

MOIC equals total value divided by invested capital, where total value is realized proceeds plus the current fair value of what is still held. A $5,000,000 investment that has returned $8,000,000 in cash and holds a remaining stake valued at $7,000,000 has a MOIC of $15,000,000 over $5,000,000, which is 3.0x.

What is the difference between MOIC and TVPI?

Denominator and perspective. MOIC divides by capital invested in a position and is usually quoted at the deal level and gross of fund fees. TVPI divides by paid-in capital, which is the capital the fund has actually called including capital used to pay fees, and is reported at the fund level net of fees and carried interest. A manager's MOIC will therefore be higher than the fund's TVPI on the same portfolio.

What is the difference between MOIC and IRR?

MOIC measures how many times the money came back and ignores how long it took. IRR measures the annualized rate implied by the timing of the cash flows. For a single investment held for a known period, IRR is approximately MOIC raised to the power of one over the number of years, minus one. Neither is sufficient alone.

Is a 3x MOIC good?

Usually yes for a single position, but the answer depends on level, fees and time. A 3.0x gross on one deal is a strong outcome; a 3.0x net at the fund level is an excellent fund. A 3.0x earned over twelve years is roughly a 10 percent annual return, which is a different proposition from the same multiple over four years. Compare within vintage year and against net figures.

Can MOIC be less than 1?

Yes. Any figure below 1.0x means the position or fund is worth less than the capital put into it. A MOIC of 0.0x means a total write-off. Because unrealized value is included, a position can move back above 1.0x later if it is re-marked or recovers.

Is MOIC gross or net?

Both exist and the label is often missing, which is the main reason the number gets misread. Invest Europe's reporting convention shows portfolio-level MOIC gross of all fees and expenses, while fund-level metrics are presented net of fees and carry. Before comparing any two multiples, establish whether each is gross or net and whether it is measured at the deal or fund level.