These notes are from Zach Brauer's financial modeling class. This is meant to be a guide I can refer to in the future as I evaluate investments for my fund and help early-stage founders build their projections and cap tables. It's also a work in progress.

Calculating returns

MOIC

• Exit amount/invested amount
• A % above 100
  • Easier to calculate
  • Sometimes you have people w no investment background and this is a better metric
• This is typically presented to LPs net of fees

IRR

• Appreciation per year
• Better for investors
• In Excel, use "XIRR"
• VCs need an IRR 20% - 30% fo be considered a solid fund
• Venture funds - typically 10 - 20% of capital is allocated in a given year as you don't want to be a subject of bad market timing.

Rule of 72

If you take a % as a whole number and divide it from 72, you’ll find out how many years it takes on avg for something to double.

• 72 / rate = years it takes for your investmento double
  • Example: 72 / 15% growth rate = 4.8 years to double

• Returns don't mean anything on their own but are compared to market
• Year after recessions tends to be good time to raise a fund bc you can ride price back up

TVPI

In hedge funds:

• DPI = cash back; metric that is distributions on paid in capital; if I got paid out for my investment, money on invested capital would be DPI.
• RVPI = unrealized value