The Great Deception in AI Startup Economics

AI startups are massively inflating revenue in front of investors. The main trick is passing off CARR (Contracted Annual Recurring Revenue) as ARR (real recurring revenue). CARR includes signed contracts that haven't started yet — and which thecustomer can still walk away from. The gap between the two figures reaches up to 70%.

Additional tricks: an unpaid annual pilot gets booked as revenue "with board approval", $42M gets "rounded up" to $50M, and investors are fine with it — each of them holds a portfolio company that's been dressed up the same way.

The root of the problem is the venture model: funds need growth not of 3x per year, but 10–20x. A healthy business can't sustain that pace, so the pretty numbers get painted on top of the real ones. When revenue is detached from revenue, what bursts is the round — not the bubble of public attention.