Capital velocity is a measure of system activity, not system success. A high velocity indicates frequent deployment and repayment cycles. A low velocity may simply mean capital is being held in cash value during a capitalization phase. Context matters: a new system in its first few years will naturally have lower velocity as cash value accumulates. The metric becomes more meaningful as the system matures.
Key Takeaways
- Velocity reflects activity level, not a measure of success or failure
- New systems naturally have lower velocity during the capitalization phase
- Context matters: velocity should be viewed alongside LTV and spread
- Velocity trends over time reveal changes in system usage patterns