Pumped
“Pumped” – A cartoon that illustrates how Software as a Service (SaaS) startups are getting over their skis with Annual Recurring Revenue (ARR) in the AI age.
For nearly two decades, SaaS was the investor’s dream of predictability. Instead of heavy, multi-year software contracts, businesses embraced monthly subscriptions. This shift made Monthly Recurring Revenue (MRR) and ARR the core language of startup finance, metrics meant to signal stability and growth. The Fintech boom of the 2010s, powered by Stripe, Plaid, Brex, and Ramp, thrived on this model. Software became more accessible and flexible, letting companies test and switch tools without punishing upfront costs.
But in 2025, the model over-exaggerates actual performance. Artificial intelligence has changed how products are built, adopted and discarded. Customers now move quickly, chasing the latest model or feature and startups can no longer count pilots or short-term trials as real revenue. As Tomasz Tunguz of Theory Ventures notes, “over time, the definition of ARR has slackened.” His research shows founders increasingly padding their numbers with one-offs, unactivated contracts or usage spikes that have little to do with recurring business.
As one VC told Fortune, “The problem is that so much of this is essentially vibe revenue. It’s not Google signing a data center contract. That’s real. Some startup that’s using your product temporarily? That’s really not revenue.”
Some AI companies are beginning to evolve the model, such as tracking usage-based revenue, model retraining fees or API call volume instead of flat subscriptions. But most are still clinging to the old playbook, chasing ARR numbers that belong to a different era. What once reflected loyal customers now often reflects nervous founders trying to stay in the race.
Sources:
Terry Chen (May 12, 2025) – Boosting ARR In B2B SaaS: A Founder’s Journey To Sustainable Growth – Forbes
Alvaro Morales (May 13, 2025) – ARR Isn’t Dead—But It Needs An Upgrade For The AI Era – Forbes
Allie Garfinkle (Sep 18, 2025) – Founders are using creative accounting to boost lofty ‘ARR’—the hottest startup metric in Silicon Valley – Fortune
