'There's no accountability;' AI startups keep claiming huge revenue. VCs say the math is getting 'murky.'
'There's no accountability;' AI startups keep claiming huge revenue. VCs say the math is getting 'murky.'
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'There's no accountability;' AI startups keep claiming huge revenue. VCs say the math is getting 'murky.'
Ben Bergman
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'There's no accountability;' AI startups keep claiming huge revenue. VCs say the math is getting 'murky.'
Ben Bergman
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Cluely CEO Roy Lee raised eyebrows earlier this year when he admitted to misstating his startup's ARR to a TechCrunch reporter.
Kimberly White/Getty Images for TechCrunch
2026-09-08T09:00:03.793Z
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Few metrics thrill Silicon Valley investors more than surging annual recurring revenue (ARR). In the AI boom, however, VCs are increasingly skeptical of what that number actually represents.
"The amount of VC-backed AI companies lying about their ARR publicly is absolutely unsettling," Greg Isenberg, CEO of Late Checkout,
wrote in a post that went viral
for saying something out loud that has been whispered about, but rarely said publicly in tech circles.
ARR was a metric that came into vogue during the software era, intended to estimate the yearly sales a company can expect from paying customers, a quick way for investors to judge a startup's valuation.
Now, venture capitalists and founders who spoke with Business Insider said ARR has become so loosely used that it can blur the line between contracted subscriptions, future deals, token consumption, hardware sales, and a single strong month of revenue.
In short, recurring revenue is often not recurring.
"It's ARR inflation," said Shruti Gandhi, a general partner at Array Ventures. "There's no accountability right now."
Gandhi says she has called out founders for exaggerating revenue. Their defense: "Everybody else is doing it."
To Alexander Niehenke,