Why IRR Doesn’t Matter in Marketing
If IRR were really important, more people would pay attention to it.
Investors are too smart to rely solely on IRR to make investment decisions. It's nothing more than an inaccurate guide that loosely predicts capability. It takes into account too many other things, such as luck, timing, and systemic risk. Are all those who had horrible performance during the recent financial crisis unskilled at what they do? Apparently not, as we're all still giving them money.
This relates to why IRR doesn't matter much in marketing. Number one, investors know that it's important to look past the IRR, and to understand what's really happening. It becomes readily evident if an investor simply “got lucky.” A fund manager could have a brilliant investment thesis that performed poorly because of events outside of his or her control (Hurricane Sandy, for example).
This is the essence as to why people should stop worrying about IRR. It's merely a box that people check, and has less to do with a go / no go decision than most people think. If it were overtly important 95% of fund managers that get money wouldn't get money.
My advice: don’t spend too much timing talking about graphs, performance, and IRR. The eyes of investors glaze over because they know that they are going to have to work really hard to figure out what's really going on. Spend more time up front talking about what makes your group different, and this typically starts with figuring it out yourself.
By Kyle Dunn