IRR (Internal Rate of Return) is the annualised rate of return on an investment, accounting for the timing of each cash flow. It is the discount rate that makes the net present value (NPV) of all cash flows — money in and money out — equal to zero.
Unlike CAGR, IRR is sensitive to *when* cash flows occur, making it the standard metric for venture capital and private equity where returns come in stages over multiple years.
IRR vs CAGR
CAGR assumes a single investment and a single exit. IRR handles multiple investments and receipts at different dates — more realistic for staged private-market positions.
Why it matters for unlisted shares
When evaluating a pre-IPO investment, estimate your target IRR: how much did you pay, what do you expect at exit, and when? A 3-year hold targeting a 2× return is roughly a 26% IRR. Top-tier VCs typically target 25–35%+ IRR across their portfolios.
For investments at multiple different dates, use XIRR instead.
Example: ₹5 lakh invested in an unlisted company that exited at ₹12 lakh after 4 years = ~24% IRR — a strong private-market return versus public benchmarks.