What is Cash-on-Cash Return?
Cash-on-cash return measures how much cash you actually get back relative to how much cash you put in. No paper gains. No unrealized appreciation. Just real money returned divided by real money invested, expressed as a percentage.
Why Cash-on-Cash Return Matters
Paper returns are promises. Cash returns are real. This metric strips away accounting complexity and asks the only question that matters: how much cash did I actually get back?
LPs use cash-on-cash returns to compare across asset classes. A venture fund showing 15% annual cash-on-cash is directly comparable to a real estate deal yielding 8%. It normalizes performance into the universal language of actual money.
Cash-on-Cash vs. MOIC vs. IRR
Cash-on-cash measures periodic yield. MOIC measures total return multiple. IRR measures time-weighted annualized return.
A deal can have a great MOIC but terrible cash-on-cash if all the returns come at exit. Conversely, a revenue-share deal might show strong cash-on-cash with a modest MOIC.
Formula
Cash-on-Cash Return = Annual Cash Received / Total Cash Invested × 100
For cumulative (non-annual) calculation:
Cumulative Cash-on-Cash = Total Cash Received / Total Cash Invested × 100
Example
LP invests $1M into a venture fund:
- Year 1: $0 distributions (deployment phase)
- Year 2: $50K distribution → 5% cash-on-cash
- Year 3: $120K distribution → 12% cash-on-cash
- Year 4: $200K distribution → 20% cash-on-cash
Cumulative through Year 4: $370K / $1M = 37% total cash-on-cash return.
Compare that to an LP who put $1M in a different fund and received nothing for 6 years, then got $2.5M back. Higher MOIC (2.5x vs. ongoing), but zero cash-on-cash for years.