What happened
A TechCrunch report details a growing trend among AI startups of inflating their public revenue figures. The primary method involves reporting "committed" or "contracted" annual recurring revenue (CARR) as standard ARR. This metric includes revenue from signed contracts that are not yet live or fully implemented.
The report, which interviewed over a dozen founders and investors, suggests the practice is common. In some cases, CARR can be 70% higher than actual ARR, counting revenue from deals that may never fully materialise due to churn or implementation failures.
How the room's reading it
The conversation, reignited by a post from Spellbook's CEO, has split practitioners. Many founders on X describe the practice as a "dishonest metric" that creates pressure for everyone else to inflate their own numbers just to compete for attention and funding. The consensus among many builders is that the headline ARR figures from some high-growth startups simply "feel fake" to anyone close to the industry.
Meanwhile, VCs seem to be in a difficult position. The TechCrunch report suggests many are aware of the fudged numbers, with some even encouraging it. The incentive is to publicly crown their portfolio companies as category kings, which helps with hiring and customer acquisition. One anonymous VC admitted, "Everyone has a company monetizing CARR as ARR."
Sailfish's take
This isn't just about creative accounting — it's a product smell. A huge gap between contracted and realised revenue often signals a painful, lengthy implementation. If customers take months or years to go live, it suggests the product is hard to adopt or the value isn't immediate. We've shipped enough complex software to know that a long sales-to-live cycle is a red flag.
For builders, the lesson is simple: don't chase vanity metrics. The pressure to post a huge ARR number is immense, but it's a short-term game that creates long-term problems. It sets a valuation you have to grow into and papers over fundamental product or onboarding issues. We'd advise founders to focus on clean, recognised revenue. That's the only number that pays the bills and proves you've actually built something people use.