For the complete documentation index, see llms.txt
For the complete documentation index, see llms.txt
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IRR (internal rate of return)
IRR stands for "internal rate of return". Unlike a simple exit multiple, IRR takes into account _how long_ it took to earn a return.
It's a harsher way of judging the success of your investments. For instance, let's assume you invest $100, that _six_ years later, is worth $200. Instead of saying, "Wow, that's a 200% return!", you'd say, "That's an IRR of 12.2%".
IRR for angel investors is very long-term. It can take up to 10 years to be able to sell your investments. So we often talk about _realized_ and _unrealized_ IRR _._ An realized return is when you sold the stock and have the cash. An unrealized return is the estimated amount the stock is worth, usually based on the last price other venture capitalists have recently paid for it.
Here's how to calculate it: The IRR on an investment is the annualized effective compounded return rate that would be required to make the net present value of the investment’s cash flows (whether they be cash in or cash out) equal to zero. NPV = NET*1/(1+IRR)^year). Or just use XIRR in Excel.
