Synopsis
A debate over how vibe-coding startup Emergent — backed by the likes of SoftBank, Lightspeed, and Khosla Ventures — has reported its numbers has put the spotlight on the ARR metric of AI startups. In February, Emergent said it had hit $100 million in ARR within just eight months of launch, but a closer look at what ARR actually means reveals a more complicated picture.In February, Emergent said it had hit $100 million in ARR within just eight months of launch, but a closer look at what ARR actually means reveals a more complicated picture.
Traditionally, ARR (annual recurring revenue) measures stable, contractually committed income. Emergent’s vibe-coding rival Lovable recently reported an ARR of $400 million. However, Emergent's figure refers to annualised revenue run rate — a far more speculative projection.
A March 10 report by Reuters, citing a court filing involving Anthropic, highlighted a similar divergence.
While the Claude maker's revenue had crossed $5 billion cumulatively, it had also pointed to a $19 billion run rate as of February-end, and the two figures reflected very different interpretations of scale.
As AI companies race to headline-grabbing numbers, it merits a look into what these metrics actually mean and why the gap between them matters.
If there’s a vast difference between annual run rate and actual revenue, why is ARR more significant than actual revenue for AI startups?
Multiple investors and founders alluded to one thing — fundraising.
“These companies are clearly scaling fast and solving real problems, and there’s genuine demand for their offerings… but they’re also spending heavily to get there. As we’ve seen in other sectors, high cash burn on its own doesn’t translate into economic value, or even perceived value. That’s what often nudges younger startups towards vanity metrics,” said a venture capital investor who has backed software and AI startups.
“It’s not unique to AI. A decade ago, consumer internet firms leaned heavily on GMV (gross merchandise value) to signal scale. Now too, the playbook is similar… show rapid growth, raise capital, use that to acquire users and expand the market, and hope that eventually converts into real value by the time you’re ready for the public markets,” he added.
Ecommerce companies reported GMV as their headline metric to show growth. Quick commerce companies report gross order value (GOV) to give an understanding of the value of goods sold on their platform, but even that has seen a shift with companies going public. Last year, Eternal, the parent of Zomato and Blinkit, started reporting net order value, or GOV minus discounts, as the headline metric to paint a truer picture.
So why is Emergent fixated on the revenue run rate?
Manav Garg, cofounder of Together Fund — one of Emergent’s earliest backers — said, “There is a clear difference between actual revenue and annualised run rate.
“For companies like Emergent, actual revenue is the primary metric, which reflects what customers are paying today for usage on the platform. Annualised run rate is simply a way to contextualise current scale in a fast-growing business, where numbers change week on week at this stage because of hyper growth. It’s useful directionally, but it doesn’t replace actual revenue,” he told ET.
In the case of Emergent, the company said in a statement that its monthly revenue is currently $8.3 million and when annualised, comes to nearly $100 million.
But don’t AI companies operate like software firms, which report recurring revenue?
Traditionally, annual recurring revenue refers to the value of predictable, contractually committed revenue a company expects to generate over a year.
It was built as a way for investors to understand how stable and `repeatable’ a business is, especially in subscription-driven models.
“This works well for SaaS because revenue is tied to fixed, contracted subscriptions. Emergent is structurally different and its model combines subscription, usage, and deployment. So, revenue grows with how much customers build and use, not just how many seats they commit to,” the investor cited above said.
This means that for Emergent, the question is less about what’s contracted, and more about what customers are actually using and paying.
In its statement, Emergent said that 65-70% of its monthly realised revenue comes from power users active across multiple weeks and months, and this share is growing. “These power users are SMBs and new businesses spending more than $300, with high retention rates,” it said, adding that revenue from power users grows more than 100% in a couple of months relative to their first month.
