The Letter VCs Are Quietly Deleting from ARR

The Letter VCs Are Quietly Deleting from ARR Startups are reporting revenue they haven't earned yet. VCs know it. Investors are cheering anyway. We've seen this movie. You're evaluating an AI startup. The pitch deck shows $100 million in ARR. The growth curve is parabolic. The deck says they signed $100 million. What it doesn't say is that $70 million of that is "committed ARR": contracts signed but not yet invoiced, customers who haven't deployed yet, pilots that count toward the number if they convert. Subtract the gap and you've got $30 million in actual recognized revenue hiding under a $100 million headline. This is the ARR inflation playbook, and it's running at full speed right now. The Trick Has a Name "CARR" stands for Contracted or Committed ARR. It's a legitimate concept. In industries where revenue accrues slowly after contract signing (healthcare AI deployments, energy optimization platforms, multi-year enterprise integrations), the gap between signature and recognition can legitimately take months or years to close. Reporting CARR alongside ARR, properly labeled, is defensible. That's not what's happening. What's happening is simpler: founders strip the "C" and just call it ARR. One VC told TechCrunch the gap between CARR and actual ARR can run as high as 70% [1]. In some confirmed cases the spread is 3-5x. Another investor said flatly: "For sure they are reporting CARR as ARR" [1]. The article indicates that the investor community is not only aware, but many are actively complicit. The logic follows its own warped rationality. When one startup in a category inflates, the others have to follow to stay competitive for talent and headlines. "When one startup does it in a category, it is hard not to do it yourself just to keep up," as one investor put it [1]. Spellbook CEO Scott Stevenson, one of the few willing to call this in public, described the practice as a "huge scam," adding that major VC funds are not just watching it happen but actively supporti