How VCs and founders use inflated ‘ARR’ to crown AI startups
Scott Stevenson, CEO of Spellbook, has raised concerns about the inflation of annual recurring revenue (ARR) figures among AI startups. He claims that this manipulation is misleading investors and the media, with many in the startup community acknowledging the issue. The use of contracted ARR (CARR) instead of true ARR has become a common practice, leading to inflated revenue claims.
- ▪Scott Stevenson exposed alleged inflation of revenue figures among AI startups.
- ▪Many investors and founders agree that ARR manipulation is a widespread issue.
- ▪CARR is often reported as ARR, leading to inflated revenue claims that may not materialize.
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Last month, Scott Stevenson, co-founder and CEO of the legal AI startup Spellbook, took to X in an effort to expose what he called a “huge scam” among AI startups: inflation of the revenue figures that they announce publicly. “The reason many AI startups are crushing revenue records is because they are using a dishonest metric. The biggest funds in the world are supporting this and misleading journalists for PR coverage,” he wrote in his tweet. Stevenson isn’t the first to claim that annual recurring revenue (ARR) — a metric historically used to sum up annual revenue of active customers under contract — is being manipulated by some AI companies beyond recognition. Certain aspects of ARR shenanigans have been the subject of multiple other news reports and social media posts.
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