# Exit Multiple

## Quick Definition

The ratio of exit proceeds to original investment, showing how many times the invested capital was returned.

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## What is an Exit Multiple?

Exit multiple (also called return multiple or money-on-money multiple) is the ratio of what an investor receives at exit to what they originally invested. A 5x exit multiple means the investor got back five times their money.

It's the simplest way to measure investment performance. No IRR calculations, no time adjustments. Just: how much went in, how much came out.

## Why Exit Multiples Matter

VCs need fund-level returns of 3x+ to be considered top-quartile. That means individual investments need to return 10x, 20x, or more to compensate for the majority of portfolio companies that return little or nothing.

When a VC says they're "looking for 10x opportunities," they mean exit multiple.

### Formula

Exit Multiple = Total Exit Proceeds ÷ Total Invested Capital

For a specific investor:

Exit Multiple = Investor's Exit Proceeds ÷ Investor's Total Investment

## Why Founders Should Care

Exit multiples drive VC behavior. A $2M seed investor targeting 10x needs your company to return $20M to them. If they own 15%, that requires a $133M+ exit. Understanding this math helps you understand what your investors actually need.

### Example

Investor puts $3M into a Series A at $12M pre-money (20% ownership).

Company sells for $150M. Investor's stake (assuming no dilution): 20% × $150M = $30M.

- Exit multiple: $30M ÷ $3M = 10x
- Investor got back 10 times their money

If the investor was diluted to 12% by later rounds: 12% × $150M = $18M.

- Diluted exit multiple: $18M ÷ $3M = 6x

Still a strong return, but dilution cut the multiple by 40%.

## Related Terms

- **DPI (Distributions to Paid-In)** 
  A fund performance metric showing actual cash returned to investors relative to invested capital.

- **TVPI (Total Value to Paid-In)** 
  A fund performance metric showing total value (realized + unrealized) relative to invested capital.

- **Carried Interest (Carry)** 
  The share of investment profits that fund managers receive as compensation, typically 20% of gains.