The explosive revenue growth reported by many AI startups is facing growing scrutiny as founders, investors, and finance professionals warn that some companies may be overstating their actual business performance.
The debate intensified after Scott Stevenson, co-founder and CEO of legal AI startup Spellbook, accused parts of the AI startup ecosystem of using “dishonest” revenue metrics to present inflated growth figures.
According to Stevenson, some AI startups publicly report annual recurring revenue (ARR) numbers that include long-term contract value or projected revenue that may never materialize.
It’s time to expose a huge scam in AI startups: Contracted ARR
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.
The setup:… pic.twitter.com/NQ0qFSntsJ
— Scott Stevenson (@scottastevenson) April 17, 2026
Contracted ARR vs Real Revenue
One of the main concerns centers around the growing use of “contracted ARR” or “committed ARR” (CARR), which includes signed customer contracts that may not yet be fully deployed or generating payments.
In some cases, startups reportedly count the highest future annual contract value as current ARR even if customers are paying far less initially.
A commonly cited example involves multi-year contracts where a customer pays $1 million in year one, $2 million in year two, and $3 million in year three, while the startup immediately reports the deal as $3 million ARR.
Critics argue this creates a distorted picture because customers may cancel before later pricing tiers ever take effect.
Multiple investors told TechCrunch they were aware of enterprise AI startups publicly claiming more than $100 million in ARR despite only a fraction of that revenue coming from active paying deployments.
Some of the remaining value reportedly came from contracts that had not yet been implemented and, in some cases, may never fully go live.
AI Boom Increases Pressure to Show Hypergrowth
The pressure to demonstrate massive growth has intensified alongside surging AI startup valuations and investor expectations.
Hemant Taneja previously argued that traditional SaaS growth trajectories were no longer sufficient in the AI era, saying startups now face expectations to scale from $1 million to $100 million in ARR far faster than previous generations of software companies.
Several investors told TechCrunch that once one startup in a category begins reporting aggressive revenue metrics, competitors often feel forced to follow in order to remain attractive to investors and customers.
Some venture capital firms are also accused of overlooking inflated metrics because strong headline revenue figures help create the perception that their portfolio companies are category leaders.
According to multiple founders and investors interviewed by TechCrunch, many VCs are aware of these practices but rarely challenge them publicly.
Another ARR Problem: Annualized Run-Rate Revenue
The confusion is compounded by another metric that shares the same ARR acronym: annualized run-rate revenue.
Instead of measuring contracted recurring revenue, this approach extrapolates short-term revenue performance over a full year.
For example, startups may take a particularly strong month, quarter, or even week of usage-based revenue and project it forward as if that pace will continue for 12 months.
Because many AI companies rely on token consumption or usage-based pricing rather than traditional subscriptions, critics say these projections can become especially volatile and easy to manipulate.
Concerns About Long-Term Sustainability
Some founders warn that aggressive revenue reporting practices could eventually damage trust across the broader AI ecosystem.
Ross McNairn, co-founder of legal AI startup Wordsmith, told TechCrunch that exaggerated metrics create unsustainable expectations and could eventually backfire when companies face public-market scrutiny.
Others argue the behavior reflects a broader race within AI to appear dominant as investors aggressively chase companies positioned as future category winners.
The concerns arrive as AI startups continue raising capital at record valuations and reporting unusually rapid growth rates. Companies including Anthropic, OpenAI, and numerous enterprise AI startups have all reported surging demand amid the ongoing AI infrastructure and agent software boom.
