IRR (Internal Rate of Return)

Definition

The annualized return on cash flows, which compares unlike deals.

Why It Matters

It is the yardstick the search-fund studies report in, and the two that matter are far apart. IESE's 2024 edition puts the aggregate for international funds at 18.1%, while Stanford's 2026 edition, with data through the end of 2025, reports 33.9% for the US and Canada. It is also the threshold a distribution waterfall's later steps often key off. A fast small exit and a long large hold can hand back the same dollars at very different IRRs, so read it beside the multiple and the hold length.

In numbers: Turning a $500k equity check into $1.5M over five years is about a 25% IRR; the same 3x multiple stretched to ten years is only about 12%, because IRR charges for time.