---
title: "What Is Return on Investment (ROI)?"
term: "Return on Investment (ROI)"
description: "Return on investment (ROI) measures net gain or loss from an investment relative to its cost — expressed as a percentage or ratio so different bets can be compared."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["metrics", "venture-capital"]
source: https://venturecapitaltracker.com/glossary/roi
---

# What Is Return on Investment (ROI)?

> Return on investment (ROI) measures net gain or loss from an investment relative to its cost — expressed as a percentage or ratio so different bets can be compared.

**Return on investment (ROI)** is the profit or loss from an investment expressed as a percentage of the amount invested.

### How it works

Basic formula: **ROI = (Current value − Cost) / Cost**.

Invest $1M in a startup; later stake is worth $4M on exit. ROI = ($4M − $1M) / $1M = **300%**. If the stake goes to zero, ROI is −100%.

Marketing teams use the same logic: spend $50K on a campaign, attribute $200K in gross margin, ROI = 300% — though attribution is often debated.

ROI ignores **time**. A 3x return in two years beats 3x in ten years; that is why venture funds emphasize **IRR** and **MOIC** alongside simple ROI. ROI also ignores risk: treasury bills and seed equity can both show positive ROI in hindsight with very different paths.

### Why it matters

- **Founders:** Customer ROI stories close deals — quantify time saved, revenue gained, or cost avoided in the buyer's terms.
- **Investors:** Quick ROI math screens deals, but portfolio construction depends on power-law outcomes and [risk-adjusted return](/glossary/risk-adjusted-return), not average ROI.

### Common mistake

Using ROI alone to compare a five-year fund hold with a six-month angel flip. Always pair return with time horizon and probability of success.

### Related ideas

See also [IRR](/glossary/irr), [MOIC](/glossary/moic), [risk-adjusted return](/glossary/risk-adjusted-return), and [CAC payback](/glossary/cac-payback).

## FAQ

### What is ROI in simple terms?

ROI tells you how much you made or lost compared to what you put in. If you invest $100 and end with $150, ROI is 50%. The formula is (gain minus cost) divided by cost, often shown as a percentage.

### Why does ROI matter?

For founders selling to enterprises, ROI helps buyers justify budget. For investors, ROI on a single deal is a snapshot; funds also care about time (IRR), risk, and portfolio-level returns — not one headline percentage.


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Source: https://venturecapitaltracker.com/glossary/roi