MoM and IRR, translated for management
Sit in any board meeting of a PE-backed company and two numbers hover over every decision: MoM (money multiple, also written MOIC) and IRR (internal rate of return). They're how your investors keep score — and because they keep score that way, they shape the decisions that determine what your equity becomes.
MoM: how many times the money
Money multiple is the simple one: total money back divided by total money in. Invest £50m, return £150m, that's a 3.0x. It ignores time completely — a 3.0x in three years and a 3.0x in nine years are the same MoM.
IRR: how fast the money
IRR is the annualised rate of return that accounts for when cash goes in and comes out. The same 3.0x is roughly a 44% IRR over three years but only about 13% over nine. Time is the whole point of the metric.
Why holding both in mind explains investor behaviour
The two metrics pull in different directions, and the tension explains a lot of boardroom weather:
- Early exit pressure often comes from IRR: a decent multiple achieved quickly can score better than a great multiple achieved slowly. If your own equity needs another two years of growth to clear the loan-note stack (see our waterfall guide), your preferred timing and the fund's can genuinely diverge.
- Hold extensions often come from MoM: a fund confident of more absolute upside may run longer, especially later in its life when it has already banked IRR elsewhere.
- Ratchets are usually written against these metrics — management's share stepping up if the investor clears, say, a 2.5x or a 25% IRR. Knowing which metric your ratchet references, and where the deal currently tracks against it, tells you which decisions move your own outcome.
The manager's version of the same maths
Your equity has its own MoM and IRR: what you paid in (subscription, exercise costs), what you might receive at various exit values and dates, and the time in between. Running your personal numbers alongside the fund's is clarifying — it shows when your interests are aligned with a fast sale, and when they're not, which is exactly the conversation worth having early rather than during a live process.
FAQ
Which number matters more?
Neither dominates universally — funds report both, and different situations weight them differently. As a rule of thumb: IRR drives urgency, MoM drives ambition, and ratchet thresholds make one of them personally relevant to you.
What's a "good" outcome for a PE deal?
Market norms move with conditions, and public benchmarks describe funds, not single deals. The more useful private question is what MoM/IRR your deal's ratchet and waterfall assume — those thresholds are the score that changes your share.
My investor talks about "DPI" — is that different?
Yes: DPI counts only cash actually distributed back to the fund's investors, as opposed to valuations on paper. It matters to fund timing decisions — funds late in life tend to prioritise turning paper into DPI, which can accelerate exit appetite.