LP Yield Metrics Beyond IRR and MOIC
For years, investors used common performance metrics, such as internal rate of return (IRR) and multiple on invested capital (MOIC), as a standard measure to analyze performance in venture capital. However, IRR and MOIC do not always provide a complete view of performance needed for LPs to make informed, long-term decisions.
Being an LP often brings opaque performance reporting. The IRR can be skewed by capital call timing and the inflated marks from early-stage valuations; MOIC overlooks the time return and lacks context of liquidity, interim cash flows and fund-level operational efficiencies. As LPs become more sophisticated, they want a performance metric that shines light on performance, consistency, and disclosure — all in the midst of unpredictable market cycles and extended exit timeframes.
Temporal Distortion in IRR: The impulsively inflated short-term IRR from accelerated mark-ups presents unrealistic expectations.
Contextual Uncertainty in MOIC: A 3x MOIC over 12 years isn't the same as a 3x MOIC over 6 years—but the way it’s currently reported as part of legacy standards conflates them.
Limited Liquidity Perspective: LPs don't have good perspectives on capital efficiency and the actual potential return over the years vintages.
Inconsistent Benchmarks: Lack of standard metrics reporting to any industry level, LPs are basically blind.
How Evolve Venture Capital Solves This
Evolve Venture Capital provides a contemporary LP-reporting framework that complements IRR/MOIC with alternative yield-based metrics, providing LPs the ability to evaluate fund performance through time.
Our Approach:
DPI-Adjusted Cash Yield Models: We prioritize DPI (Distributions to Paid-In Capital) for a more accurate view of venture capital distributions, valuation, penalties for non-liquidating costs, and early- or late-stage exits. We focus on real distributions rather than paper returns.
Time-Weighted Return Metrics: We isolate early and late-stage distortions by incorporating time-weighted indicators as a basis for attribution.
Liquidity Forecasting Dashboards: Evolve offers models for predicting capital calls and expected distributions, helping limited partners evaluate allocation outcomes and exposure to risk.
Transparent Reporting Layers: Our LP portal gives direct visibility into asset level performance, sectoral exposure, and cohort behavior across vintages.
Custom Benchmarks and Peer Comparisons: We advise limited partners on contextualizing performances on an interim basis against relevant stage and market benchmarks at any level of aggregation.
This more holistic perspective provides clarity and improved decision-making to feed a limited partner’s confidence in their venture capital allocation. Innovation, and the evolving practices to account for it, separates Evolve Venture Capital from our peers. We don't promise returns; we promise visibility, precision, and alignment to the extent we are aware of what transpires outside the norm.
