Thousands of AI startups are competing fiercely for venture capital to capture the enterprise market. Scott Stevenson, founder and CEO of legal AI firm Spellbook, has criticized some startups for inflating their revenue metrics to appear more successful. He highlights a misuse of a key measure, annual recurring revenue (ARR), which should represent subscription revenue projected over a year. Instead, some startups report ‘contracted ARR’ (CARR), which includes potential future revenues from deals not yet realized, misleading investors and media. This practice can inflate revenue claims by 3-5 times. Stevenson urges journalists to scrutinize whether reported ARR figures reflect actual invoiced revenue or include optimistic projections. The distortion pressures other startups to follow suit, creating risky behaviors and confusion in the market. This skepticism adds concern to the already uncertain economic outlook for AI companies and their ability to deliver on promised growth.
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