MOIC

Multiple on Invested Capital — the metric the On the Nature of Long-Term Holds Yale case argues should govern long-term entrepreneurs, in deliberate opposition to IRR. The authors’ frame: “IRRs can be splashy and sexy, but MOIC is what truly generates wealth and converts to nominal dollars.” The worked example recurs throughout — given a 35% IRR over three years (2.46x MOIC) or a 15% IRR over ten years (4.05x MOIC), they “would eagerly select the lower IRR for the longer hold,” because the choice is really between turning a dollar into $2.40 or $4.05. Pushed further, a 15% IRR held for 25 years compounds to a 33x MOIC, and a 13% IRR over 25 years yields 20x. MOIC is thus the metric that follows directly from taking Compounding seriously: it rewards holding through the friction of trade (taxes, fees, idle cash, redeployment risk) that flipping incurs.

The Todd McKinnon — Creating and Defining a New Market Category notes apply the same lens to operating a company: optimize for “MOIC-style nominal outcomes over splashy growth, and persist the compounding,” tied to McKinnon’s animating question of how best to persist the long-term growth of Okta.

Context: MOIC (multiple on invested capital) measures total value returned divided by capital invested — a nominal-dollar multiple — whereas IRR annualizes the rate of return and is highly sensitive to holding period. The distinction is a standard one in private equity and search-fund investing, where a high IRR over a short hold can produce far less absolute wealth than a moderate IRR compounded over decades.

Where this appears

• On the Nature of Long-Term Holds — the case’s headline argument: optimize for MOIC over IRR; the 2.46x-vs-4.05x and 33x-over-25-years examples.
• Todd McKinnon — Creating and Defining a New Market Category — MOIC-style nominal outcomes over splashy growth, applied to persisting Okta’s compounding.