Multiple on Invested Capital (MOIC) is a financial metric that measures total returns generated from an investment as a ratio of the original capital invested. It shows how many times an investor has multiplied their initial investment through distributions and remaining portfolio value. MOIC is widely used in private equity and venture capital to evaluate fund performance without considering the time value of money, making it a critical metric alongside tools like cap table waterfall models for assessing investment outcomes.
What is Multiple on Invested Capital (MOIC)
MOIC provides a straightforward measure of absolute returns. A MOIC of 2.5x means an investor received $2.50 for every dollar invested. Unlike time-weighted metrics like IRR, MOIC focuses purely on the magnitude of returns regardless of investment duration.
MOIC captures both realized and unrealized value. It includes cash distributions already received plus the current fair market value of remaining holdings. This comprehensive view makes MOIC essential for tracking ongoing fund performance throughout the investment lifecycle.
MOIC Formula and Calculation
Basic MOIC Formula
MOIC = (Total Value) / (Invested Capital)
Where:
- Total Value = Distributions Received + Current Portfolio Value
- Invested Capital = Original Investment Amount + Any Follow-On Investments
This simple ratio produces a multiple expressed as "X" (e.g., 3.2x, 0.8x, 5.0x).
| Component | Definition | Example |
|---|---|---|
| Distributions Received | Cash dividends, partial exits, recapitalizations | $1,500,000 |
| Current Portfolio Value | Fair market value of remaining holdings | $3,500,000 |
| Total Value | Distributions + Current Value | $5,000,000 |
| Invested Capital | Original + follow-on investments | $2,000,000 |
| MOIC Result | Total Value ÷ Invested Capital | 2.5x |
Calculation Steps
Follow this process to calculate MOIC accurately:
- Sum all cash distributions received from the investment to date (dividends, partial exits, recapitalizations)
- Determine current portfolio value using the latest valuation or 409A appraisal
- Calculate total value by adding distributions + current value
- Sum invested capital including initial investment and all follow-on investments
- Divide total value by invested capital and express as a multiple (e.g., 2.5x)
MOIC vs Other Investment Metrics
MOIC vs IRR
MOIC and Internal Rate of Return (IRR) measure different aspects of investment performance:
| Feature | MOIC | IRR |
|---|---|---|
| Time Consideration | Ignores timing | Accounts for time value of money |
| Calculation | Simple division | Complex iterative calculation |
| Example | "3x return" | "25% annual return" |
| Best Use Case | Absolute return comparison | Time-adjusted performance |
| Sensitivity | Not affected by timing | Highly sensitive to when cash is returned |
Key Difference: A 3.0x MOIC achieved in 2 years equals approximately 73% IRR, while the same 3.0x MOIC over 10 years equals only 12% IRR. MOIC is "time-blind" while IRR incorporates the time value of money.
MOIC is immune to distribution timing games. Private equity funds sometimes accelerate early distributions to inflate IRR. MOIC provides a more honest picture of total value creation regardless of distribution patterns.
MOIC vs ROI
Return on Investment (ROI) and MOIC are similar but expressed differently:
| Metric | Formula | Example Result | Expression |
|---|---|---|---|
| MOIC | Total Value ÷ Invested Capital | $3M ÷ $1M = 3.0 | 3.0x |
| ROI | (Total Value - Invested Capital) ÷ Invested Capital × 100% | ($3M - $1M) ÷ $1M = 200% | 200% |
Relationship: MOIC = (ROI% / 100) + 1
Private equity and venture capital professionals prefer MOIC because it directly answers "How many times did we multiply the capital?" This framing better communicates absolute value creation to limited partners.
MOIC in Practice
Fund Performance Reporting
MOIC is the primary metric for reporting fund performance to limited partners (LPs). General partners calculate and report MOIC quarterly alongside IRR to provide a comprehensive performance picture.
Fund managers calculate MOIC at multiple levels:
- Individual Investment MOIC: Tracks each portfolio company separately to identify winners and guide follow-on decisions
- Fund-Level MOIC: Aggregates all portfolio companies to represent total fund performance
- Vintage Year MOIC: Compares funds raised in the same year to control for market conditions
Follow-On Investment Decisions
MOIC helps determine whether to deploy additional capital into existing portfolio companies:
Strong Performer (Current MOIC 3.0x+): Consider follow-on to increase ownership, but risk diluting excellent returns if valuation is too high. Calculate marginal MOIC on new capital only.
Moderate Performer (Current MOIC 1.5x-2.5x): Evaluate whether additional capital can accelerate growth. Compare to alternative investment opportunities.
Poor Performer (Current MOIC <1.0x): Generally avoid follow-on investment unless bridge financing is needed to reach an exit milestone.
MOIC Calculation Example
A venture capital firm invested $2,000,000 in a Series A round in January 2020:
| Year | Event | Total Value | MOIC | Notes |
|---|---|---|---|---|
| 2020 | Series A investment | $2,500,000 | 1.25x | 409A valuation increase |
| 2021 | Series B funding round | $6,000,000 | 3.0x | Significant valuation increase |
| 2022 | $500K dividend distributed | $6,000,000 | 3.0x | Value unchanged despite distribution |
| 2023 | Acquisition exit | $12,500,000 | 6.25x | $500K earlier dividend + $12M exit proceeds |
Final MOIC = $12,500,000 / $2,000,000 = 6.25x
This investment generated a 6.25x MOIC over 4 years, meaning every dollar invested returned $6.25 to investors.
MOIC Benchmarks
Private Equity Performance
| Fund Type | Top Quartile | Median | Bottom Quartile |
|---|---|---|---|
| Large Buyouts | 2.3x-3.0x+ | 1.8x-2.3x | <1.5x |
| Middle Market | 2.2x-2.8x | 1.8x-2.2x | <1.5x |
| Small Buyouts | 2.5x-3.0x | 2.0x-2.5x | <1.5x |
Smaller deals typically target higher MOIC due to increased risk and illiquidity premiums. Larger deals accept lower MOIC given reduced execution risk.
Venture Capital Performance
| Fund Type | Top Quartile | Median | Bottom Quartile |
|---|---|---|---|
| Seed/Pre-Seed | 4.0x-6.0x+ | 1.2x-1.8x | <0.8x |
| Series A-B | 3.5x-5.0x+ | 1.5x-2.2x | <1.0x |
| Growth Stage | 2.5x-3.5x | 1.3x-1.9x | <1.0x |
Venture capital MOIC follows a power law distribution where 10-20% of investments generate 80-90% of total returns. Early-stage funds depend on a few "home runs" to offset numerous failures.
MOIC Limitations
While MOIC provides valuable insights, it has important limitations:
1. Time Blindness: MOIC ignores the time value of money. A 2.5x MOIC in 2 years is far superior to 2.5x in 10 years, but MOIC treats them identically. Always report MOIC with IRR and holding period.
2. Valuation Subjectivity: Unrealized portfolio value relies on subjective fair market value estimates using 409A valuations or comparable analysis. MOIC based on unrealized gains should be treated cautiously.
3. No Risk Adjustment: MOIC does not account for risk differences. A 3.0x MOIC from late-stage growth involved far less risk than 3.0x from seed stage, but MOIC treats them equally.
4. Distribution Timing: MOIC gives no credit for early distributions that enable reinvestment versus lump-sum exits at fund liquidation.
Best Practices:
- Report gross and net MOIC (before and after fees)
- Distinguish realized vs unrealized MOIC in performance reports
- Provide MOIC alongside holding period for context
- Compare MOIC to peer benchmarks within the same vintage year
- Use conservative valuation methodologies for unrealized holdings
Frequently Asked Questions
What is a good MOIC for private equity?
A good MOIC for private equity buyout funds is 2.0x-3.0x net of fees. Top-quartile funds achieve 2.3x-3.0x+, while median funds deliver 1.8x-2.3x. Smaller funds target higher MOIC (2.5x-3.0x) due to increased risk.
What does a 2.5x MOIC mean?
A 2.5x MOIC means the investment returned $2.50 for every $1.00 invested, representing a 150% return on invested capital. If you invested $1,000,000, the total value generated was $2,500,000, including both cash distributions and remaining portfolio value.
How is MOIC different from IRR?
MOIC measures absolute returns as a multiple without considering time, while IRR measures time-adjusted returns as an annualized percentage. A 3.0x MOIC could represent 73% IRR (2 years) or 12% IRR (10 years). Use both metrics together.
Can MOIC be less than 1.0x?
Yes, MOIC can be less than 1.0x when an investment loses money. A 0.6x MOIC means investors recovered only $0.60 per dollar invested, representing a 40% loss. Failed investments can have 0.0x MOIC (total loss) while partially recovered investments fall between 0x-1.0x.
Conclusion
MOIC is the primary metric for evaluating absolute investment returns in private equity and venture capital. By measuring total value generated relative to capital deployed, MOIC provides a clear picture of investment performance independent of time considerations. Use MOIC alongside IRR, holding period, and benchmark comparisons to develop a comprehensive understanding of fund and portfolio company performance.