CEOs Involved: "You Lose Out If You Don't Do It"... The 'Trick' Shaking the AI Industry

It has been revealed that inflating sales to secure investments is widespread among artificial intelligence startups in Silicon Valley.

U.S. business media outlet Business Insider reported that "sales inflation," where AI startups arbitrarily interpret or distort sales metrics to announce them, is thriving.

The core metrics serving as the benchmark for startup valuations and attracting investments are Annual Recurring Revenue (ARR) and Run Rate, but some startups are confusing investors by mixing the two or blurring the boundaries between them, according to the report.

Annual Recurring Revenue refers to the subscription revenue that can be stably secured every year based on actual annual or multi-year contracts concluded with customers.

On the other hand, Run Rate is calculated by simply multiplying a specific month's performance by 12.

Recently, rather than charging monthly subscription fees, AI companies often use Run Rate while charging usage-based pricing based on tokens or usage time.

Taking advantage of this, a growing number of startups are sending distorted signals by announcing Run Rates based on sales from months that showed so-called "flash sales."

In particular, some startups are even found to be announcing figures calculated by lumping together temporary token sales, commissions, and one-time equipment sales that are not normally targeted as recurring revenue, all under the label of Annual Recurring Revenue.

Because of this, venture capital firms point out that a phenomenon is occurring where "recurring revenue" does not actually recur.

There were even cases where performances completely detached from the truth were publicly disclosed.

Roy Lee, CEO of AI startup Cluree, told the press last year that his company's Annual Recurring Revenue was 7 million dollars, but as controversy arose, he belatedly admitted eight months later that he had made "blatantly dishonest" remarks and that the actual figure was 5.2 million dollars.

(Reported by Kim Jiuk | Video by Kim Na-on | Graphics by Lee Jung-joo | Produced by SBS Digital News)
※ Please note: This article was translated by AI and may contain errors.