# Market Terms Aren’t Always Good Investor Economics | Velocity Capital

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- Published at: 2026-06-17 17:26:25 UTC
- Updated at: 2026-06-17 19:31:00 UTC

## Author
Nick Hunley

## Subject
Velocity Capital

## Content
I’ve come full circle on startup valuations.When I started angel investing, my gut told me that a lot of the valuations did not make sense. The more syndicates I joined and investments I made, the more I learned what the startup market accepted as “normal” and now I’m back to where I started.For example - let's look at the difference between a profitable operating business and a pre-revenue startup. A profitable business might trade at roughly three times annual net profit. It has revenue, customers, operating history, assets and cash flow. A buyer can evaluate what exists today, account for the risks and determine what multiple the business supports.Now consider a pre-revenue startup raising $100,000 on a $6 million post-money SAFE cap. The company is essentially saying “Give us $100,000 today for a contractual right that is expected to convert into roughly 1.67% of a business with no revenue yet, before future dilution which you should expect in future rounds.”That can still be considered a normal startup valuation because the company has a large TAM, a strong team, intellectual property and the potential to scale.I understand that startup investing and buying an operating business are different. But I am increasingly skeptical of the idea that they are so different that normal valuation logic no longer applies.Compare it to a typical SMB blue-collar business like an HVAC company. It could expand into new markets, acquire competitors, franchise its model, add recurring service plans, build proprietary software and eventually become a national platform. The TAM is enormous and scalability exists.But a buyer generally will not pay today for the national roll-up that has not been built yet, the HVAC owner has to prove it.Meanwhile, a pre-revenue startup may receive substantial valuation credit for an equally unproven future...and arguably one that is even less likely to occur because the operating business is already an ongoing concern. The startup founder receives credit for much of the potential upside today, while the investor funds the execution and bears much of the risk required to create it.Maybe that is “market", but market terms and attractive investor economics are not necessarily the same thing.I am not saying every pre-revenue company should be valued at zero (obviously). I still invest in startups, and EBITDA and current cash flow are not the only legitimate ways to assess value. But investors should think carefully before writing checks into pre-revenue companies at multimillion-dollar valuations.It is already really tough to pick winners and valuation makes that math harder (especially compared to putting your money in VOO or SPY and doing nothing, but that's not why we're angel investors).At a $6 million cap, the company doesn't just need to succeed, it generally needs to become worth many multiples of that amount for the original investment to produce an attractive return after years of illiquidity and future dilution.That is why I increasingly focus on questions such as:What has actually been built?What has already been proven?What risk remains?What does this capital specifically accomplish?How much more capital will likely be required?What ownership will the investor retain after future financing?What realistic outcome is required to create an attractive return?This does not mean every opportunity has to be profitable today.There can be attractive opportunities in startups, recaps, turnarounds and other situations where the current financial statements do not tell the whole story but the economics still need to compensate investors for what has not yet been proven.This is also why Velocity Capital Syndicate focuses heavily on opportunities with more tangible economic foundations: operating businesses, hard assets, oil and gas interests, community banks, contracted or recurring revenue, and select sports and entertainment opportunities with identifiable assets or understandable paths to investor returns.The story, opportunity and team matter.