Glossary - Equity Multiple
The equity multiple is a financial metric used to evaluate the return on investment (ROI) for an equity investor. It represents the ratio of total cash distributions received from an investment to the total amount of equity invested. Essentially, it measures how much money an investor will make on their investment, expressed as a multiple of the original investment.
Also known as
- Investment Multiple
- Cash Multiple
Use cases examples
- Investment Summary: The projected equity multiple for this venture is 2.5x, indicating that investors are expected to receive 2.5 times their original investment over the life of the investment.
- Exit Strategy Plan: Upon successful exit, we anticipate delivering an equity multiple of 3.0x to our equity holders, signifying a tripling of the initial equity investment.
Considerations for investors
- Investors should assess the equity multiple in the context of the project's risk. Higher multiples are typically expected for higher risk investments.
- Comparing equity multiples across similar investments can aid in identifying more attractive investment opportunities.
Considerations for founders
- Understanding the expected equity multiple can help in setting realistic financial expectations and in communicating potential returns to investors.
- A higher equity multiple may attract more investors, but founders should ensure that projections are achievable and based on realistic assumptions.
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