Module IV· IRR / MOICBasic
Question
What is the difference between IRR and MOIC?
Answer
| Metric | Formula | Measures |
|---|---|---|
| IRR | Discount rate at NPV=0 | Time value of money |
| MOIC | Total Cash Returned / Cash Invested | Absolute multiple |
Example
$100m Y0 → $250m Y5
- MOIC = 250/100 = 2.5x
- IRR = (2.5)^(1/5) − 1 = 20.1%
Rule of thumb (middle-market)
| Hold | MOIC target | IRR target |
|---|---|---|
| 3-4 yrs | 1.8-2.3x | 20-25% |
| 5 yrs | 2.5-3.0x | 20-25% |
| 6-7 yrs | 3.0-4.0x | 18-22% |
Pitch tip
Use both — IRR for the LP pitch, MOIC for the risk view. A high IRR with a low MOIC can be timing manipulation.