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--- using-offtoa:financial-reports:internal-rate-of-return [2016/05/26 19:57]
127.0.0.1 external edit
+++ using-offtoa:financial-reports:internal-rate-of-return [2016/09/19 12:58] (current)
@@ Line 4: / Line 4: @@
 <php>echo "<font size='4'><b>How to Read the ".$conf["comp_name"]." Internal Rate of Return (IRR) Report:</b></font>";</php>\\ \\
-If you are planning to have external parties invest in your company, this is one of the most important sections for you. Internal rate of return (or IRR for short) is the most common way for angel investors and venture capitalists to determine if the investment is bringing them a good financial return. Of course, they will only invest if the business makes sense from all perspectives, but assuming that it passes all those tests, then it comes down to what kind of return they will get. Since start-ups by their very nature are extremely high risk, they must have a correspondingly high financial return, or else they will invest in something less risky. IRR is the compounded annualized rate of return for their investment. Thus, for example, if an investor invests $1,000,000 in a company, and 1 year later the company is acquired and that investor's share of the proceeds is $1,500,000, the investor's IRR is 50%. That is, s/he received a 50% return on the investment. Another example: If the same investor invests $1,000,000 in a company, and 2 years later the company is acquired and that investor's share of the proceeds is $2,000,000, the investor's IRR is only 41.4%. That is, s/he received a 41.4% 2-year compounded return on the investment ($1,000,000 x 1.414<sup>2</sup> = ~$2,000,000).
+If you are planning to have external parties invest in your company, this is one of the most important reports for you. Internal rate of return (or IRR for short) is the most common way for angel investors and venture capitalists to determine if the investment is bringing them a good financial return. Of course, they will only invest if the business makes sense from all perspectives, but assuming that it passes all those tests, then it comes down to what kind of return they will get. Since start-ups by their very nature are extremely high risk, they must have a correspondingly high financial return, or else they will invest in something less risky. IRR is the compounded annualized rate of return for their investment. Thus, for example, if an investor invests $1,000,000 in a company, and 1 year later the company is acquired and that investor's share of the proceeds is $1,500,000, the investor's IRR is 50%. That is, s/he received a 50% return on the investment. Another example: If the same investor invests $1,000,000 in a company, and 2 years later the company is acquired and that investor's share of the proceeds is $2,000,000, the investor's IRR is only 41.4%. That is, s/he received a 41.4% 2-year compounded return on the investment ($1,000,000 x 1.414<sup>2</sup> = ~$2,000,000).
 <php>echo $conf['comp_name'];</php>'s IRR report shows the three phases of determining internal rates of return for classes of shareholders.
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 <font 18px/arial>**Related Questions:**</font>
-**[[:faqs:learn-IRR-report|What can I learn from the IRR report?]]**
+**[[:faqs:irr:learn-IRR-report|What can I learn from the IRR report?]]**
-**[[:faqs:inconsistent-returns|What should I do if my plan shows a group of investors receiving a better return than an earlier group of investors?]]**
+**[[:faqs:irr:inconsistent-returns|What should I do if my plan shows a group of investors receiving a better return than an earlier group of investors?]]**
-**[[:faqs:investors-want-high-returns|Why do investors want such high IRRs?]]**
+**[[:faqs:analysis-irr:investors-want-high-returns|Why do investors want such high IRRs?]]**
-**[[:faqs:how-view-IRR|How do I change the IRR my investors expect?]]**
+**[[:faqs:settings:how-view-IRR|How do I change the IRR my investors expect?]]**
-**[[:faqs:how-change-valuation|How do I change the valuation of my company?]]**
+**[[:faqs:irr:how-change-valuation|How do I change the valuation of my company?]]**
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