IRR of a ₹25 Lakh Startup Investment (4 Years)

Invest ₹25 lakh in an early-stage startup. Zero returns for 2 years, then a buyout at ₹1.5 crore in year 4. Calculate the annualised IRR.

This calculation's inputs

Number of periods: 4
Initial investment: ₹25,00,000
Hurdle rate: 25%

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IRR result

Internal Rate of Return

56.51%

Exceeds 25% hurdle rate

Total inflow

₹1.5 Crore

₹1,50,00,000

Total outflow

-₹25 Lakhs

₹-25,00,000

NPV at 25%

₹36.44 Lakhs

₹36,44,000

Payback period

4 periods

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About this scenario

Startups carry high failure risk. Investors typically demand 25-35% IRR (called a hurdle or required return) to compensate for the probability that the startup fails and returns zero. A 25% hurdle means the investment must at least 6x in 10 years to justify the risk.

If you invest ₹25L and get ₹1.5Cr in 4 years (6x), the IRR is approximately 57%. This is considered a good venture return, top-tier Indian VCs target 3-5x in 5 years on a portfolio basis.

Frequently asked questions

IRR, or Internal Rate of Return, is the discount rate that makes the net present value (NPV) of all cash flows from a project equal to zero. In plain terms, it is the annualised return your investment generates, accounting for the timing and size of each cash flow. A higher IRR means a more profitable investment.

A common benchmark is the hurdle rate, typically 10-15% for most investments in India. Real estate projects often target 15-20% IRR, while equity investments can target 18-25%. If your IRR exceeds the cost of capital or your personal required return, the investment is worth pursuing.

CAGR assumes a single lump sum investment and a single redemption, with no intermediate cash flows. IRR handles multiple periodic cash flows but assumes equal time gaps between them. XIRR is the most flexible: it handles irregular cash flows on specific dates, making it ideal for SIPs or real-world investments. For most mutual fund SIPs, XIRR is the right metric.

IRR is found by iteratively solving the equation: NPV = sum(CF_t / (1+r)^t) = 0, where CF_t is the cash flow at time t and r is the rate being solved for. This calculator uses the Newton-Raphson numerical method to converge on the answer within a tolerance of 0.0001%.

IRR cannot be calculated if all cash flows are the same sign (all outflows or all inflows), because the NPV curve never crosses zero. It can also fail if cash flows change sign more than once, creating multiple valid IRR solutions. In such cases, use NPV analysis with your chosen hurdle rate to evaluate the investment.

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IRR solved using Newton-Raphson iteration. If cash flows change sign more than once, multiple IRRs may exist. NPV at hurdle discounts at 25%.

IRR of a ₹25 Lakh Startup Investment (4 Years)

About this scenario

Why is the hurdle rate 25% for a startup investment?

What is a 6x return in 4 years in IRR terms?

Frequently asked questions

What is IRR?

What is a good IRR in India?

What is the difference between IRR, CAGR, and XIRR?

How is IRR calculated?

What does it mean if IRR cannot be determined?