How VCs and founders use inflated ‘ARR’ to kingmake AI startups

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 newsreports and socialmedia posts.

However, Stevenson’s tweet seemed to have struck a particular nerve within the AI startup community, drawing over...

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