There’s a quiet little trick happening across the enterprise AI landscape. Startups are reporting annual recurring revenue numbers that look incredible on pitch decks and press releases, but bear little resemblance to the money actually hitting their bank accounts. Scott Stevenson, co-founder and CEO of legal AI company Spellbook, decided to say it out loud.
In an April 2026 post on X that racked up over 200 reshares, Stevenson called out the widespread practice of conflating “Contracted ARR” with actual revenue. He identified instances where reported ARR was five times higher than what companies were genuinely collecting. The kicker: he says the investors backing these companies are fully aware of the gap.
The ARR inflation playbook
In traditional SaaS, ARR is a fairly straightforward metric. You take the revenue you’re currently generating from active subscriptions and annualize it. It’s supposed to reflect reality, not aspiration.
But a growing number of AI startups have adopted a looser standard called Contracted ARR, or CARR. CARR counts revenue from signed contracts and future commitments that haven’t materialized into actual payments yet. A company might sign a multi-year deal with an enterprise client worth $10 million, book that as part of its ARR figure, and conveniently skip mentioning that implementation hasn’t started and no invoice has been sent.
