How do I calculate IRR for my track record?
Short answer
Line up every dated cash flow for each deal. Money in is negative, money out is positive, and any unsold holding counts as a final positive at its current value. Then run XIRR in a spreadsheet. Label the result gross or net of fees, show it next to the equity multiple, and many sponsors talk to a securities attorney before publishing it.
I get this question from sponsors and fund managers all the time. The math is the easy part. What takes care is the data you feed into it and how you present the answer.
Build the cash flow table first
Start with one row per cash flow, per deal. Each row needs a date and an amount. Capital your investors put in is a negative number. Distributions, refinance proceeds and sale proceeds are positive numbers. If a deal is not sold yet, add one last positive row for the current value of the holding, dated as of your reporting date, and mark it as unrealized.
Then use the XIRR function in Excel or Google Sheets. It takes your amounts and your dates and returns an annualized rate. Use XIRR and not the plain IRR function, because real deals rarely pay out on neat, evenly spaced dates.
Decide what the number means before you show it
Be clear about which version you are showing. Gross IRR is before fees and carry. Net IRR is what the investor actually received. Say which one it is, every time. Say whether it includes unrealized value. Show the equity multiple beside it, because a high IRR on a quick small win can look better than a slower deal that returned far more money.
Include every deal in the period you claim, not only the winners. Sophisticated investors will ask about the ones you left out. Many sponsors talk to a securities attorney about how to present performance numbers before they go in a deck or on a website.
This wealth advisor explains how they weigh past performance when deciding which funds to recommend to clients.
What investors do with the number
An IRR is one input. It does not close the investor. In my own panel talks I say that a lot of people can be successful once or twice, and the person worth betting on shows a record that repeats.
"a lot of people can be successful once or twice. But the person that you want to bet on has that consistent and compelling track record of success."
So the table behind your IRR matters as much as the headline. Investors want to see many deals, over time, with the good and the bad in plain view. A clean spreadsheet that ties to bank statements and closing documents does more for your credibility than a big percentage with no support.
If your record is short
A shorter record is not a dead end. One syndicator told me family offices want ten years and he only had three. I told him that is simply not true. Some families invest with managers who have no audited financials, and in my experience it is rare to see a fund under 100 million in assets with them.
Here I answer a syndicator who was told he has no shot with family offices on a three year track record.
Summary and key takeaways from this video
With a short record, an annualized IRR can swing wildly on one deal. Show the dollars and the dates next to the percentage, so the reader can see what actually happened.
This clip shows the question I ask to tell a real all-star from someone who just sells well.
Summary and key takeaways from this video
More from my talks
One more thing on a short record. Some managers wait to raise capital until the track record is long, and I think that is a mistake, because if you do not try raising capital until then, you have not learned anything yet. I would rather you start with smaller investors and smaller deals, then build better stories, more traction and more experience over time. Each deal you add becomes another set of rows in your cash flow table, so the record grows while you are talking to investors, not before.
"Some people think, especially in the fund management industry, and the hedge fund space needs to hear this all the time, is if you build the track record, the investors will come. That's not true either, because if you don't try raising capital until you have a long track record, you're not going to have learned anything yet."
"Start with smaller investors, start with smaller deals, then gain better stories, better deals, more traction, get more articulate, you have more experience, more track record."
Facts and figures
- In my experience, it is rare to see a fund with less than 100 million in assets under management that has audited financials.
- A syndicator with three years of history was told family offices want at least ten years, and I told him that claim is not true.
- One wealth advisor said past performance matters but is not all-inclusive, because some people with great records get cocky while some newer managers have a great process.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: Family Office Hot Seat: Real Capital Raising Advice for Founders & Investors | Monthly Webinar, Alternative Investment, Real Estate, and Private Equity RIA Investor Mandate Interview, The #1 Thing Investors Look for Before Writing a Check | Family Office Club Panel. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around performance presentation, investor communications and marketing material review. Do not use AI to write your own legal agreements.
Where to start
- 1List every deal with dated contributions, distributions and current value.
- 2Run XIRR in a spreadsheet and check it against a second method.
- 3Label the result as gross or net, realized or unrealized.
- 4Show equity multiple and dollar totals next to the IRR.
- 5Many sponsors talk to a securities attorney before sharing it with investors.
More questions on this
Should I use IRR or XIRR in a spreadsheet?
For real deals with irregular dates, XIRR is the better fit because it uses the actual date of each cash flow. Plain IRR assumes equal time between payments.
Do I include unsold deals in my track record?
Many managers include them with a final value as of a stated date and clearly mark that part as unrealized. Many sponsors talk to a securities attorney about how to present it.
Is a short track record enough to raise capital?
It can be. Investors weigh the record alongside your process, your team and the risk profile of what you are offering.
Related questions
- How do I build credibility as a first-time sponsor?Build credibility by closing smaller deals first and being honest that you are new.
- How do I show traction to investors with only one deal?Treat one deal as the first step of your momentum.
- What track record can I claim as a deal team member?Many sponsors describe the part of a deal they personally did, in the role they actually held.
- Can I use my partner's deals as my track record?Many sponsors show their partner's deals by presenting them as the partner's and saying what their own role was in each one.
Work through it with the dilution calculator. See all track record and credibility resources.