# IRR Calculator | Free Internal Rate of Return Tool

> Calculate the internal rate of return for any series of cash flows. Free IRR calculator for venture capital, private equity, and real estate investments.

URL: https://raziel.co/tools/irr-calculator

Calculate the Internal Rate of Return for any investment. Enter your initial investment and expected cash flows to find your annualized return.

## Results

Internal rate of return

13.29%

Annualized return across 6 yearly cash flows.

**Total invested**

$100,000

**Total returned**

$155,000

**Net profit**

$55,000

**MOIC**

1.55x

Returned / invested

**Holding period**

5 years

**Payback**

Year 4

First year cumulative cash is positive

You put in $100,000 and got back $155,000 (1.55x) over 5 years. Given when each dollar came back, that is the same as earning 13.29% a year, compounded.

Cash flows by year

$100K

$25K

$30K

$40K

$50K

StartYr 1Yr 2Yr 3Yr 4Yr 5

- Invested
- Returned

Track IRR across your entire portfolio

Log every check and distribution once, and Raziel keeps IRR, MOIC and TVPI current for each investment and the portfolio as a whole.

[Start free](https://app.raziel.co/sign-up)

The math

## What is internal rate of *return?*

Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of an investment. It represents the annualized rate of return at which the net present value (NPV) of all cash flows, both inflows and outflows, equals zero. In simpler terms, IRR tells you the percentage return your money earns each year over the life of an investment, accounting for the timing of every dollar in and out.

IRR is one of the most widely used metrics in venture capital, private equity, and real estate investing because it allows apples-to-apples comparison between deals with different time horizons and cash flow patterns.

Because IRR cannot be solved algebraically, it is found iteratively, which is exactly what this calculator does for you using the Newton-Raphson method.

0 = Σ CF_t / (1 + IRR)^t for t = 0 to n CF_t = cash flow in year t (year 0 is the initial investment)

### Assumptions and simplifications

- Cash flows are assumed to arrive once a year at evenly spaced intervals. For real dates, use the [XIRR calculator](https://raziel.co/tools/xirr-calculator).
- IRR assumes interim cash flows are reinvested at the same rate, which may not be realistic.
- When the signs of the cash flows flip more than once, more than one rate can solve the equation; the one nearest 10% is shown.

Worked example

### $100,000 in, five growing distributions

**Year 0**

-$100,000

**Year 1**

$10,000

**Year 2**

$25,000

**Year 3**

$30,000

**Year 4**

$40,000

**Year 5**

$50,000

**MOIC**

1.55x

IRR**13.29%**

Using IRR

## When to use IRR, and how it *compares*

## When to use IRR

- Comparing two or more investment opportunities with different cash flow timing
- Evaluating the performance of a venture capital or private equity fund
- Assessing whether a real estate deal meets your return threshold (hurdle rate)
- Modeling startup investment scenarios with irregular distributions
- Benchmarking your portfolio returns against industry standards

## IRR vs. other return metrics

### IRR vs. ROI

ROI gives you a simple total return percentage. For example, you invested $100K and got back $200K, so your ROI is 100%. But ROI ignores time. If that return took 2 years vs. 10 years, the quality of the investment is very different. IRR solves this by annualizing the return and accounting for when cash flows occur.

### IRR vs. MOIC

Multiple on Invested Capital (MOIC) tells you how many times your money came back: a 3x MOIC means you turned $1 into $3. MOIC is simple and intuitive but, like ROI, it ignores timing. A 3x in 2 years is far better than a 3x in 10 years. That's why sophisticated investors use both MOIC and IRR together for a complete picture. Try the [MOIC calculator](https://raziel.co/tools/moic-calculator) to see both.

### IRR vs. XIRR

Standard IRR assumes evenly spaced periods (annual, quarterly). XIRR is an extended version that handles irregular dates. If you received a distribution on March 15 and another on November 3, XIRR accounts for the exact days. For most modeling purposes, annual IRR (what this calculator provides) is the standard starting point. When you have exact dates, use the [XIRR calculator](https://raziel.co/tools/xirr-calculator).

## Further reading

- [Raziel Learn MOIC vs IRR: Which Number to Trust on an Angel or LP Statement](https://raziel.co/learn/moic-vs-irr)
- [Raziel Learn Net IRR vs Gross IRR: Which Number Belongs on Your Tracker](https://raziel.co/learn/net-irr-vs-gross-irr)
- [Raziel Learn How to Track Paid-to-Paid IRR as an LP After You Close](https://raziel.co/learn/paid-to-paid-irr-tracking)

## Frequently Asked Questions

Common questions about the IRR calculator and the math behind it.

### What is a good IRR?

It depends on the asset class and risk. For venture capital, top-quartile funds target 25-30%+. For private equity, 15-25% is strong. Real estate investors often target 12-20% depending on the strategy (core vs. value-add vs. opportunistic). Public equities historically return ~10% annually.

### Can IRR be negative?

Yes. A negative IRR means the investment lost money: the total cash returned was less than the amount invested. This is common in early-stage venture portfolios where some companies fail entirely.

### What are the limitations of IRR?

IRR assumes that interim cash flows are reinvested at the same IRR rate, which may not be realistic. It can also produce multiple solutions when cash flows switch between positive and negative multiple times. For these cases, Modified IRR (MIRR) is a better metric. Additionally, IRR doesn't account for the size of an investment. A 50% IRR on a $10K deal is less impactful than a 20% IRR on a $1M deal.

### How is IRR used in venture capital?

VCs use IRR to measure fund performance and individual deal returns. LPs (limited partners) evaluate fund managers largely on net IRR. The J-curve effect means VC fund IRR is typically negative in early years (due to fees and slow deployment) before turning positive as portfolio companies exit. A fund's IRR at maturity is a key benchmark for fundraising subsequent funds.

### What's the difference between gross IRR and net IRR?

Gross IRR measures returns before management fees and carried interest. Net IRR is what investors actually receive after all fees. Net IRR is the more meaningful number for LPs, while GPs may report gross IRR to show deal-level performance. The difference between the two typically ranges from 3-8 percentage points depending on the fee structure.

Related tools

## More free *calculators*

[All tools](https://raziel.co/tools)

- [Returns MOIC Calculator Multiple on invested capital, realized and unrealized. Open calculator](https://raziel.co/tools/moic-calculator)
- [Returns XIRR Calculator Excel-matching XIRR from cash flows on any dates. Open calculator](https://raziel.co/tools/xirr-calculator)
- [Returns CAGR Calculator Compound annual growth rate, or the value a growth rate gets you to. Open calculator](https://raziel.co/tools/cagr-calculator)