Two numbers appear on almost every opportunity: a target IRR (internal rate of return), usually given as a band such as 18–24%, and an indicative tenor, such as 4–5 years. Together they are shorthand for 'how much, and over how long'. Understanding what they do and don't tell you is the difference between reading a teaser well and being misled by it.
What IRR is
The internal rate of return is the annualised rate at which an investment's cash inflows and outflows net to zero — in plain terms, the compound annual return that ties together what you put in, when, and what you get back, when. Unlike a simple multiple (e.g. '2x your money'), IRR is time-weighted: getting 2x in three years is a far higher IRR than 2x in seven years. That sensitivity to timing is its strength and its trap.
Why IRR is so sensitive to timing
- An earlier exit raises IRR even if the total multiple is unchanged — the same gain compounds over fewer years.
- A delay — a slow ramp, a postponed exit, an extension — can collapse a headline IRR while the multiple barely moves.
- Early distributions (interim dividends or partial realisations) lift IRR by returning capital sooner.
- Because of this, a high target IRR usually embeds an assumption about a timely exit. If that slips, the number slips.
What tenor tells you
Tenor is the expected life of the investment — how long your capital is committed before it is returned. It is indicative because the actual hold depends on when the asset is realised. Tenor matters for two reasons: it sets your liquidity expectation (this is not money you can call back next quarter), and it is the denominator behind the IRR. Always read the target IRR and the tenor together: a 22% IRR over 4 years and a 22% IRR over 8 years describe very different commitments and very different multiples.
Why 'indicative' is the key word
An indicative target is an illustration of what the deal could return under a set of assumptions — not a forecast, not a promise, and not a floor. Actual results can differ materially, and emerging-market and single-asset deals carry currency, sovereign, regulatory, counterparty, concentration and liquidity risk that can move the outcome a long way from the illustration. The honest way to read a target IRR band is: 'this is the return the sponsor is aiming for if their assumptions hold' — then go and test those assumptions.
Indicative returns and tenors are illustrative only, are not a forecast or guarantee, and are general information rather than advice or an offer. Test the assumptions in the data room and the definitive documents, and obtain your own independent advice before investing.
Where the real numbers get fixed
Indicative figures live in teasers; the terms that actually bind live in the documents. A term sheet records the headline economics of an investment, and a co-investment term sheet or SPV subscription pins down the slice, fees, drawdown and distribution waterfall for a specific deal. Each is available as a fillable template here.