A quiet trick is spreading across enterprise AI. Startups report inflated annual recurring revenue (ARR) on pitch decks that bears little resemblance to actual cash flow. Spellbook CEO Scott Stevenson called it out. In a viral X post, Stevenson accused many firms of conflating 'Contracted ARR'-promised future payments from signed contracts-with real revenue. He cited examples where reported ARR was five times the actual collected amount. Investors, he claims, know the gap.
Stevenson's own company, legal AI firm Spellbook, reports only 'Live Annual Run Rate' based on invoiced, active contracts. The firm closed a $50 million Series B in 2025 at a $350 million valuation, followed by $40 million in venture debt from RBC in March 2026. Spellbook serves roughly 4,000 customers across 80 countries and tripled revenue in 2025.
Clio CEO Jack Newton and Y Combinator's Garry Tan have echoed similar concerns.