AI Startups’ Revenue Disclosures Get Worse

I don’t envy AI investors right now. The price of AI startup shares (unlike the value of my stock portfolio) seem to be only going up, which means it’s riskier to make new bets. 

And the way startups are disclosing financial metrics to investors seems to be getting more muddied. Take annual recurring revenue, which typically multiplies the past month’s subscription revenue by 12. It’s a crucial metric for investors trying to assess a startup’s performance—especially when they’re calculating what price they’re willing to pay for the startup’s shares. 

ARR gives a sense of the scale and growth of a startup’s business while also providing some reassurance that customers will stick around. Of course, it also makes revenue look bigger than it actually is, since it hasn’t been booked yet.

But startups keep finding more ways to artificially inflate their ARR.