AI startups are accused of falsifying revenue figures

Last month, Scott Stevenson, co-founder and CEO of Spellbook, a company operating in the legal technology sector, exposed a widespread fraud among AI startups on social media, as reported by Zamin.uz.

According to him, many new companies today are focused on artificially inflating their annual recurring revenue (ARR) metrics. Stevenson believes that even the world’s largest investment funds are indirectly contributing to the spread of this misinformation by pressuring journalists to amplify their influence.

These findings were investigated by influential publications. ARR is typically used to calculate the revenue expected from active contracts.

However, experts argue that AI-focused companies have manipulated this calculation to a significant degree. Based on interviews with industry representatives, investors, and financial experts, it has become clear that inflating revenue in public statements has now become common practice.

The primary method involves presenting the value of signed but not yet fully executed future contracts as current revenue. This triggers a chain reaction.

If one company inflates its metrics, competitors are forced to follow suit to maintain investor attention. For years, ARR has served as a key benchmark for evaluating the success of technology ventures.

Yet, this metric is not subject to formal accounting audits, as international accounting standards are based on actual, received revenue—not projected future earnings.

This loophole allows young companies to portray their financial health as significantly better and more attractive than it truly is.

Such a situation may lead to reduced transparency in the sector and cause investors to make misguided decisions.