| Term | Definition |
|---|
| J-curve | The typical pattern of PE/VC fund returns: negative in early years (fees, unrealized investments) followed by positive returns as investments mature and are exited; the cumulative return chart resembles the letter “J” |
| Internal rate of return (IRR) | The discount rate that makes the NPV of all cash flows (capital calls and distributions) equal to zero; the standard time-weighted return metric for PE/VC funds |
| Multiple on invested capital (MOIC) | Total value (realized + unrealized) divided by total invested capital; a simple return multiple that does not account for time value of money |
| Gross return | The fund’s return on investments before deducting management fees and performance fees; reflects pure investment performance |
| Net return | The fund’s return after deducting all fees and expenses; represents what the LP actually earns |
| Capital commitment | The total amount an LP pledges to invest in a fund; drawn down over time via capital calls |
| Capital deployment | The process of investing committed capital into portfolio companies or assets over the fund’s investment period |
| Capital distribution | Cash or securities returned to LPs from the fund, typically from exits (sales, IPOs, dividends, recapitalizations) |
| Committed capital | Total capital pledged by all LPs and GP to the fund; basis for management fee during the investment period |
| Invested capital | The portion of committed capital that has actually been drawn down and invested; basis for management fee after the investment period |
| Carried interest (carry) | The GP’s share of fund profits above the hurdle rate, typically 20%; the primary performance incentive for the GP |