Few metrics thrill Silicon Valley investors more than surging annual recurring revenue (ARR). In the AI boom, however, VCs are increasingly skeptical of what that number actually represents.

“The amount of VC-backed AI companies lying about their ARR publicly is absolutely unsettling,” Greg Isenberg, CEO of Late Checkout, wrote in a post that went viral for saying something out loud that has been whispered about, but rarely said publicly in tech circles.

ARR was a metric that came into vogue during the software era, intended to estimate the yearly sales a company can expect from paying customers, a quick way for investors to judge a startup’s…