MOIC (multiple on invested capital)

Total value divided by the money put in - 300,000 back on 100,000 is 3.00x.

Example

A deal returning 300,000 on 100,000 after nine years is 3.00x; one returning 200,000 after three years is 2.00x.

Important

It contains no time, which is deliberate: nothing that merely changes timing can move it. That makes it a poor decision tool and an excellent check on whether a strong rate was actually earned.

Related terms

  • Internal rate of return (IRR) — The single annual rate at which every cash flow, positive and negative, discounts back to exactly zero - the r solving sum of CF_t/(1+r)^t = 0.
  • TVPI (total value to paid-in) — A fund multiple counting cash already distributed plus the current value of everything still held, divided by the capital investors have paid in.
  • DPI (distributions to paid-in) — A fund multiple counting only money actually paid back to investors, divided by the capital they paid in.

Lessons that explain it

  • One investment can decide the return of twenty — Venture portfolio returns follow a power law: most of the money comes from very few companies. Working through a portfolio's arithmetic shows why missing the best company matters more than avoiding the worst. (11 min)
  • Ownership at exit is ownership today multiplied by every round's dilution — An early investor's final ownership is their entry stake reduced by each later round and option pool increase. Modelling the chain shows what exit value is needed for a target return. (11 min)
  • A follow-on buys the same company at a higher price, so it needs its own maths — Exercising pro rata rights maintains ownership, but the new money earns a lower multiple than the original investment. Modelling follow-ons across scenarios shows when they add value. (11 min)
  • Four sections decide the vote; the rest is context — A memo can run to fifteen pages and still be decided on four of them - the thesis, the bear case, the return math and the terms. Everything else is background that makes the reader feel informed without changing the answer. (11 min)
  • Three engines: profit growth, debt paydown and a higher exit multiple — Buyout returns come from growing earnings, using cash flow to repay debt, and selling at a higher valuation multiple - and only the first is reliably within the manager's control. (13 min)
  • MOIC: the multiple, and why it ignores time on purpose — The multiple answers one question exactly - how many times your money came back - and refuses to answer any other. Its blindness to time is a feature and a trap. (10 min)

All 578 terms in the Investing glossary