Startup Terms Glossary
What is a Hurdle Rate?
A hurdle rate defines what the minimum net gain or loss over a period of time is on a project or an investment. Hurdle rates are important because they help give valuable guidance to startups deciding whether or not to make certain investments. Hurdle rates can be determined by considering the riskiness of an investment, how much the capital costs, and expected returns on other investments or projects.
Hurdle Rate Examples
Examples how hurdle rates are used by investors:
- Example 1. An investment is considered “sound” when its rate of return is higher than its hurdle rate.
- Example 2. When an investment’s rate of return is less than its hurdle rate, it is considered a risky investment, which may cause investors to avoid it.
Here’s another web page about hurdle rate.
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