Why do the Exit Multiples and IRRs vary so much by round?

The variation is entirely due to the time element.  A second investment round immediately prior to the sale of the company, which as a result generates a return almost immediately, can have a much higher IRR than and earlier investment, even if the earlier investment was at a much lower valuation and had a higher exit multiple.  This illustrates the time element of the IRR calculation - finance theory punishes projects which tie up cash longer.

For more on IRR, check out our blog post:

Demystifying the Internal Rate of Return Measurement

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