Multiple on Invested Capital (MOIC)
Multiple on Invested Capital (MOIC) is the total value of an investment, realized proceeds plus remaining unrealized value, divided by the capital invested in it, expressed as a multiple such as 2.5x.
Reviewed by Peleg Chevion, Managing Partner
That is the meaning of MOIC in private equity, venture capital and growth equity. A MOIC of 1.0x returns exactly the capital invested, a MOIC below 1.0x is a loss of capital, and a MOIC of 2.5x returns two and one-half times the capital invested. The measure ignores when cash moved, which is both its strength and its limitation.
Mechanism
The Institutional Limited Partners Association (ILPA) defines the portfolio-level gross multiple as the sum of the unrealized value of portfolio investments and all distributions received from them, divided by the total capital invested in them (ILPA Performance Template Definitions, Granular Methodology v1.1).
MOIC = (Realized Proceeds + Unrealized Value) ÷ Invested Capital
- Realized Proceeds are cash and distributions already received from the investment.
- Unrealized Value is the fair value of what is still held.
- Invested Capital is the capital actually deployed into the investment, before any fund-level fees or expenses.
Gross and net versions differ in what they subtract. A gross multiple is measured before the fund's fees, expenses and carried interest. A net multiple is measured after them, from the investor's side.
ILPA calls its gross multiple for an entire private fund "Fund-Level Gross MOIC" because only cash paid in for investments sits in the denominator, and calls the corresponding net multiple Net TVPI, which divides the investors' share of net asset value plus all distributions by total capital contributed for any purpose (same ILPA document). The Global Investment Performance Standards for Firms, provision 5.A.4, require a firm that presents money-weighted returns for a composite whose portfolios have committed capital to report total value to paid-in capital (the investment multiple, or TVPI), DPI, RVPI and paid-in to committed capital (CFA Institute, 2020).
| Measure | Question it answers | Treatment of time | Base |
|---|---|---|---|
| MOIC | How many times has invested capital been returned? | None. Different holding periods can show the same multiple. | Capital invested in investments; gross unless labeled net |
| IRR | At what annualized rate did the dated cash flows compound? | Central. Every cash flow is weighted by its date. | Dated cash flows and ending value |
| TVPI | What is total value per dollar the investor paid in? | None. Equal to DPI plus RVPI. | All paid-in capital, including fees; net to the investor |
Worked Example
Consider a hypothetical $100 million fund. By year 10, investors have paid in $95 million: $75 million is invested in portfolio companies and $20 million funds management fees and partnership expenses. The portfolio is worth $213.75 million in total, counting both realized proceeds and unrealized value, before fees, expenses and carried interest.
- Gross MOIC. $213.75 million ÷ $75 million = 2.85x.
- Carried interest. Assume carried interest equals one-fifth of profit after all paid-in capital is returned, with any preferred return ignored for simplicity. Profit is $213.75 million − $95 million = $118.75 million, so carried interest is $23.75 million and investors receive $190.0 million.
- Net TVPI. $190.0 million ÷ $95 million = 2.00x. The gap between 2.85x and 2.00x is 0.85x. Carried interest accounts for 0.32x ($23.75 million ÷ $75 million), and the larger base, which includes the $20 million of fees and expenses, accounts for the remaining 0.53x.
- DPI and RVPI at year 10. If $171.0 million has been distributed and $19.0 million of net value remains, DPI is 1.80x, RVPI is 0.20x and TVPI is 1.80x + 0.20x = 2.00x.
- IRR for the same multiple. For one investment with a single outflow and a single inflow, IRR = MOIC(1 ÷ years) − 1. A 2.85x multiple earned over 3 years is an IRR of 41.8%, over 6 years 19.1%, and over 10 years 11.0%.
All figures are hypothetical arithmetic, not any actual vehicle.
What It Means for a Limited Partner
A limited partner reads a gross multiple as evidence about the manager's selection and value creation, and a net multiple as evidence about what the investor kept. The two differ by fees, expenses and carried interest, so the gap between them, 0.85x in the example, is itself diagnostic.
Three questions follow. First, is the multiple realized or unrealized? A multiple built mainly on unrealized value rests on the manager's valuation, while DPI isolates cash already returned. Second, over what period? Because the measure ignores timing, it belongs beside IRR, and a high multiple earned over a long hold can carry a modest IRR. Third, is the base comparable? A multiple divided by invested capital and a multiple divided by all paid-in capital are different measures, which is why ILPA gives them different names.
Under Advisers Act Rule 206(4)-1(d)(1), an advertisement that presents gross performance must also present net performance with at least equal prominence, over the same period and using the same type of return and methodology (17 CFR 275.206(4)-1).
In Life Sciences and Healthcare
In life sciences, the multiple on a single position can span a wide range because outcomes turn on discrete clinical and regulatory events. A study by BIO, Informa Pharma Intelligence and QLS Advisors covering 2011 to 2020 put the likelihood of approval at 7.9% for a drug program entering Phase I and at 52.4% for one entering Phase III (BIO, Clinical Development Success Rates 2011–2020).
A pre-approval holding therefore resolves toward a loss of most invested capital or a multiple well above the portfolio average, while a company with a cleared or approved product and recurring revenue produces a narrower distribution. Staged financing adds a second effect: capital released at milestones enlarges the denominator over time, so a multiple measured on the first tranche alone can overstate the final result.
Governing Authority and Sources
- ILPA, Performance Template Definitions, Granular Methodology v1.1.
- CFA Institute, GIPS Standards for Firms, 2020, provision 5.A.4.
- 17 CFR 275.206(4)-1(d)(1), Investment Adviser Marketing Rule.
- BIO, Clinical Development Success Rates 2011–2020.
Frequently Asked Questions
What does MOIC mean in private equity?
MOIC stands for multiple on invested capital. It divides the total value of an investment, realized proceeds plus unrealized value, by the capital invested in it. A result of 2.5x means the investment is worth two and one-half times what was invested. The measure ignores timing and, unless labeled net, is calculated before fees, expenses and carried interest.
How is MOIC calculated?
Add realized proceeds to unrealized value, then divide by invested capital. In the hypothetical $100 million fund above, $213.75 million of total value divided by $75 million invested gives a gross MOIC of 2.85x. Dividing the $190.0 million investors receive after carried interest by the $95 million they paid in gives a net multiple, TVPI, of 2.00x.
What is the difference between MOIC and IRR?
MOIC counts how many times capital was returned and ignores timing. IRR measures the annualized rate at which dated cash flows compounded. The same 2.85x multiple is an IRR of 41.8% over three years and 11.0% over ten. Limited partners read the two together.
Related Reference
This entry belongs to the growth equity thesis. Related entries: Total Value to Paid-In, Distributions to Paid-In Capital and The J-Curve.