MoIC computation
Suppose I invest in a $50MM funding round of a company at a pre-money valuation of $200MM and manage to exit the company 5 years down the road at $500MM.
Is my MoIC 2x (500/250) or 2.5x (500/200)?
My guess would be that it is 2x. Reason is that suppose I invested $200MM in the company instead and owned 100% of it post funding round, then when I exit I would get $500MM and this would imply a 2.5x multiple.
Thank you.
I’ll add some specifics to the scenario so that everyone can follow my math - hopefully that helps illustrate what’s going on here.
You’re investing in a funding round. You’re making the entire investment, for $50M, into a company whose pre-money valuation is $200M. Ignoring any other effects on shares (option pool, warrants, etc.), you now own 20% of the company ($50 / $250 post-money).
Upon exit, the business is valued at $500M. The transaction is a total buyout, and 100% of the shares are sold — no rollover. None of the shares were preferred, so there’s no preferred waterfall to consider. Also, we’re in a fantasy land where there are no transaction costs (sorry, bankers and lawyers).
That means the full proceeds from sale should be $500M. As a 20% owner, you’re entitled to 20% of the proceeds, or $100M. Your MOIC is (100 / 50) = 2.0x.
Brilliant explanation. Thank you sir!
what is the prevailing standard (IRR or MOIC)? Im sure big LPs look at both but assuming they vary on preference
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