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Why Delayed Payoffs Make Great Growth Stories Terrible Investments
The Allure of the Growth Story
In the world of investing, few things are as seductive as the hockey-stick chart. Whether it’s a tech startup promising exponential user growth or an infrastructure project projecting steady returns decades into the future, the headline number is usually the same: a dazzling growth rate.
On paper, these delayed payoffs look extraordinary. A company that claims your $100,000 will turn into $500,000 in ten years can advertise a compound annual growth rate (CAGR) of nearly 18%. For many investors, that’s enough to spark interest.
But there’s a catch: CAGR only tells you how much the investment grows between the first and last data points. It doesn’t care when the money arrives. If all the gains show up at the end, the chart still looks brilliant, even if the investor endured a decade of risk without seeing a cent along the way.
That’s where Net Present Value (NPV) provides a reality check.
CAGR: The Growth Illusion
CAGR is simple and elegant. It compresses messy numbers into a single annualized growth rate. If you want to compare two funds, projects, or businesses, CAGR gives you an apples-to-apples view.
But CAGR can also mislead because it ignores timing. Consider this example:
Investment A grows from $100,000 to $200,000 steadily over 10 years, with cash inflows spread evenly.
Investment B stays flat for nine years and then explodes to $200,000 in year ten.
Both boast the same CAGR. Yet from a risk and cash flow perspective, these are entirely different experiences.
For instance, plug both cases into a CAGR calculator, and you’ll see that the headline growth rate looks identical even though the cash flow patterns couldn’t be more different.
NPV: The Timing Reality Check
NPV asks the essential question: “What are future payoffs worth today?”
By discounting future cash flows, NPV incorporates two critical elements:
Risk: The longer you wait, the greater the chance something derails the payoff.
Time value of money: $1 today is more valuable than $1 ten years from now because it can be invested, consumed, or protected against inflation in the meantime.
Take the $500,000 windfall in year ten. With a 10% discount rate, its present value is about $192,000. If you run that scenario through a net present value calculator, the gap between promise and reality becomes obvious.
Case Study 1: Venture Capital’s Late Jackpot
Venture capital thrives on backloaded payoffs. A portfolio of ten startups may show one “unicorn” IPO in year nine that transforms headline returns. The CAGR for that fund might look staggering.
But when you discount the late-stage payoff and factor in nine years of illiquidity, the NPV can be underwhelming or even negative. Many VC funds rely on interim mark-ups or secondary sales precisely because waiting until the very end erodes true value.
Case Study 2: Infrastructure and the Long Wait
Large projects like toll roads, airports, or renewable power plants often advertise impressive lifetime growth. Once operational, they generate stable, long-term revenue streams.
But most of that cash arrives decades later. The initial capex is massive, payback periods are long, and regulatory or political risks accumulate over time. The CAGR in year 25 might look attractive, but the NPV, discounted for decades of uncertainty, may reveal the project is marginal at best.
This is why infrastructure funds spend as much time modeling discount rates as they do building out projected growth curves. Without that, even the most robust projects can become value traps.
Why Growth ≠ Value
The paradox is clear:
CAGR tells you how fast something grows.
NPV tells you whether that growth creates value.
Investors who rely solely on CAGR risk being dazzled by late windfalls that look impressive but don’t deliver in today’s terms. NPV strips away the illusion and forces the hard question: “Is this really worth it once risk and time are considered?”
Practical Takeaway for Investors
When you evaluate any growth story, whether it’s a fund, project, or business case, run both lenses:
Start with CAGR to understand the growth trajectory.
Stress-test with NPV to see if that growth is valuable now, not just someday.
Doing this often reveals investments that appear stellar in a pitch deck but disappointing once adjusted for reality. Conversely, steady performers with modest CAGR can sometimes shine on an NPV basis because they deliver early, consistent cash flows.
Conclusion: Don’t Fall for the Late Payoff Trap
In finance, timing is everything. A 20% CAGR backed by a single payoff in year ten may sound impressive, but it can leave you poorer than a modest 6% CAGR with reliable yearly returns.
Growth stories are easy to sell; value stories are harder to see. Smart investors don’t settle for the headline number. They ask when the money arrives, what risks accumulate along the way, and whether the payoff today justifies the wait.
Because in investing, the real question isn’t how much you’ll get — it’s when you’ll get it.
