Before investing with IRR targets of 23% and 30%, what two questions should you ask?

• A. What is the investment horizon? What is the equity check?
• B. What is the target IRR? What is the leverage ratio?
• C. Who is the management team? What is the geographic focus?
• D. What is the exit plan? What is the debt maturity?

Answer: (A)

The key idea here is that IRR targets are driven by two fundamental inputs: timing and capital. Understanding the investment horizon says when you expect to realize cash flows and ultimately exit the investment. The timing of that exit and the pace of cash distributions are what largely determine whether you can achieve high IRRs like 23% or 30%. If the holding period is too short or if exit conditions aren’t favorable, reaching those IRRs can be unrealistic, even if the deal looks attractive on other metrics.

The equity check, or how much equity you need to commit, matters because it sets the scale of capital at risk and influences the leverage you can use, the risk you’re taking, and the return profile you must deliver. A larger equity requirement or tighter capital constraints can make the required IRR harder to achieve, while a smaller, well-structured equity commitment can align payoffs with the target IRRs.

Other considerations—such as the specific target IRR itself, the level of leverage, who is running the management team, geographic focus, the explicit exit plan, or debt maturities—are important, but they depend on having a realistic sense of how long you’ll hold the investment and how much capital you’ll deploy. Without clarity on horizon and equity size, the stated IRR targets don’t have a workable path to execution.