3 Revenue Terms Angels Get Wrong

Originally sent to Play Money subscribers · May 2025

Part of our ongoing Tuesday series on how to read startup financials — GMV, ARR, unit economics, and the numbers founders use to tell their story.

💎 My podcast co-host Andy told me about a startup board he's on. He said the company does "$40 million in revenue."

Turns out the real number was $8 million. And once he told me how the business worked, the smaller number was more impressive.

-- C2K

Andy wasn't lying. Both numbers were true.

The $40 million was gross marketplace value, every dollar flowing through the platform. The $8 million was the company's actual take. A bootstrapped, real, durable $8 million business.

If you can't spot the difference, you can't evaluate the deal.

Three revenue terms that trip up lots of angels

GMV vs. revenue. Marketplace businesses, where a buyer and seller are using the startup's product to do business, see big numbers flowing through them. That's gross marketplace value. Your real revenue is the take rate, your slice. A platform doing $40M in GMV at a 25% take rate is a $10M business. Both are true. Only one pays the bills.

The two ARRs. Same three letters, completely different things. Annual recurring revenue means customers signed up on a subscription that renews. Annual revenue run rate means one good month multiplied by twelve. One is proven. One is a projection wearing a suit. Always ask which one.

Unit economics. Do the costs of the business scale with every new dollar of revenue, or do they stay fixed? In a healthy software business, every new sale adds margin. In a business reselling something at a thin markup, every new sale adds work. Same revenue line. Wildly different companies.

Add in AI and things get really nutty!

The revenue terms above have been sloppy forever. But AI deals have taken things to a new level. Not only are terms "a little loose" in some cases they are deliberately deceptive. 👀

Here's what to sniff out if early revenue sounds almost too good.

🌶️ Compute at a loss. A company sells AI services that cost more in compute than they bring in. They book the gross number as revenue. The economics don't work, but the headline does. Uber-style subsidy, except the subsidy is venture money burning down.

🌶️ The contract trick. Five-year contract. Free in year one. $10 million in year five. Cancelable any time. The company books the total contract value as revenue today. Ask about year-one cash and year-five cancellation clauses.

🌶️ The run rate dress-up. One monster month, multiplied by twelve, called ARR. No subscription. No retention. A single number announced as a trajectory. Ask whether the customers come back.

Why this matters

The founders being honest about real, durable, $8M-bootstrapped revenue can look small next to AI headlines. They're often the better business.

Clarity is character. When a founder gives you the smaller, true number with context, that tells you how they run everything else.

You don't need to know everything - just one more thing than before.

🎯 Now go try it out on a real deal

1. Go to It's Electric and ask Casey AI "Where does the Founder talk about how It's Electric makes money."
2. Or scan the deal memo and click "Why 2 business models"

[Open the deal →]

You don't have to invest. You don't have to decide. Just go look at one company's revenue with new questions in mind.

Play Money makes angel investing accessible by helping everyday angels build diversified startup portfolios without turning it into a full-time job.

If you want weekly breakdowns like this in your inbox:

→ Register for Play Money and our weekly newsletter