Levered IRR is the IRR computed on equity cash flows after financing — what the sponsor’s limited partners actually experience on their equity check.

How it works

In an LBO, equity investors put in cash at close and receive dividends and exit proceeds net of remaining debt. Levered IRR incorporates those equity-only flows. Unlevered IRR treats the deal as if bought all-cash, isolating operating performance from capital structure.

Debt can raise levered IRR if the company performs — equity captures a larger share of enterprise value growth because debt claims are fixed. If the company struggles, levered IRR collapses faster than unlevered because equity is the first loss layer.

Why it matters

• Founders: If you roll equity in an LBO, your outcome tracks levered returns on the rolled stake — sensitive to exit timing and debt at sale.
• Investors: Fund pitch decks emphasize levered IRR for buyout funds. Compare gross vs net, and watch IRR’s sensitivity to early small distributions vs late big exits.

Sensitivity tables show levered IRR at multiple exit multiples and debt paydown paths. A small change in exit timing can swing IRR dramatically because of debt amortization and equity catch-up.

LPs increasingly request both gross and net levered returns after fees and carry to compare sponsor skill fairly.

Common mistake

Ranking deals on IRR alone without MOIC or hold period. A quick 1.3x can beat a slow 2.5x on IRR math.

Related ideas

• Unlevered IRR and MOIC
• Leveraged Buyout (LBO)
• DPI and fund-level returns