Understanding investor returns
When investors evaluate a startup deal, they care about two numbers more than any other: the return multiple, or MOIC, and the internal rate of return, or IRR. MOIC tells them how many times they got their money back — a 5x MOIC means a ₹1 crore cheque turned into ₹5 crore. IRR tells them how that return compounds annually, which matters because a 5x return in 3 years is dramatically better than a 5x return in 12 years. Founders who understand both numbers can have much sharper conversations with investors about expectations, timelines and the kind of exit the business might enable.
The math is simple but the implications are not. If an angel writes a ₹50 lakh cheque for 10% of a startup at a ₹5 crore post-money, and the company exits seven years later at ₹100 crore, that 10% is worth ₹10 crore. MOIC = 20x. IRR works out to roughly 53% per year. Those are home-run numbers, and they are why venture capital is structured the way it is — most investments fail or break even, and a few outliers carry the entire portfolio.
MOIC vs. IRR — when each matters
MOIC is the headline number — easy to explain, easy to compare. But it ignores time. IRR fills that gap. A 3x return in 4 years is roughly a 32% IRR, which is excellent. A 3x return in 10 years is only a 12% IRR, which barely beats public markets and may not be worth the risk of an illiquid startup investment. Sophisticated investors usually target 25–30%+ IRR for early-stage venture, which translates to roughly 3x in 5 years or 5x in 7 years.
What makes a good return?
For seed-stage investors, anything below 5–10x on the rare winners is considered disappointing because most of the portfolio will return zero. Series A investors target 5–7x on winners, Series B 3–5x, and growth investors 2–3x with much shorter holding periods. As a founder, knowing the "target return" for your stage of investor helps you understand why they push for certain valuations and exit expectations — and why a good investor will care just as much about the exit story as the entry price.
Tips for founders
- Know your investor's target MOIC — it defines what counts as a good outcome.
- Talk in IRR when the holding period varies; talk in MOIC when comparing fund returns.
- Model the math: if your max realistic exit is ₹500 crore, what entry valuation makes the round work for the investor?
- Remember that follow-on rounds and dilution shrink an early investor's percentage.
- Liquidation preferences and carry can change effective returns — always check the term sheet.