"The AI investing boom (or perhaps bubble) is something Silicon Valley has seen many times before: a gold rush of VC money thrown at the Big New Thing. But one aspect of it is completely unique to these times: startups rocketing from $0 to as much as $100 million in annual recurring revenue, sometimes in a matter of months. Word on the street is that many a VC won't even look at a startup that's not on the ARR superhighway, aiming for $100 million in ARR before their Series A funding round."
"But Andreessen Horowitz general partner Jennifer Li, who helps oversee many of the firm's most important AI companies, warns that some of the ARR mania is based on myths. "Not all ARR is created equal, and not all growth is equal either," Li said on an episode of TechCrunch's Equity podcast. She said to be especially skeptical of a founder announcing spectacular ARR numbers or growth in a tweet. Now, there is a legit, well-recognized term in accounting called annual recurring revenue, which refers to the annualized value of contracted, recurring subscription revenue. Essentially, that's a guaranteed level of revenue because it comes from customers on a contract. But what many of these founders are tweeting about is really "revenue run rate" - taking whatever money was paid in a period of time and annualizing it. "There's a lot of missing nuances of the business quality, retention, and durability that's missing in that conversation," Li warned."
The AI investing boom features startups rapidly reporting enormous annualized revenue figures, with many claiming ARR growth to $100 million within months and attracting VC attention. Annual recurring revenue denotes contracted, recurring subscription revenue and reflects more durable, guaranteed income. Many founders instead share revenue run rate, which annualizes a single period's payments and can misrepresent sustainability. Short-term pilots, month-to-month sales spikes, and weak retention can make headline ARR figures fragile. Investors should examine contract terms, retention metrics, customer durability, and consistent revenue performance rather than relying on annualized monthly claims.
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