Iconiq partner: founders fail to specify ARR vs run rate

Many founders pitch revenue metrics without saying which revenue they mean, Iconiq partner Anu Bharadwaj said at TechCrunch Disrupt, TechCrunch reported Oct. 23. "Is it true ARR or is it run rate?" she said. "There's many ways to obfuscate the whole thing." She spoke alongside Sapphire Ventures partner Rajeev Dham and Superhuman Mail founder Rahul Vohra.

For a limited partner, the same question applies one level up: ask a GP how recurring revenue is defined, whether pilot revenue counts, and how concentrated revenue is among the largest customers. Those three answers do more work than a growth rate quoted in a quarterly letter.

The gap between a trial and a paying deployment is the harder test, Bharadwaj said. "It's never been easier to gain a bunch of pilots because lots of companies across the board are open to trying new things," she said. "But going from pilot to production is really the hard thing."

Much of the recent chatter on X, TechCrunch reported, has focused on AI founders inflating ARR, a figure that can mean annualized run rate or the firmer annual recurring revenue. A common gimmick, per the report, is counting pilot customers who might use a product for only a couple of months inside the annualized run rate, implying the income continues for a full year.

Bharadwaj named two revenue-quality red flags: a handful of customers making up much of a company's revenue, and customers who can easily move to another vendor for a better price. "Churn rate and retention [are] really dependent on that," she said.

Vohra's answer is engagement. Superhuman Mail tracked ARR but also an internal metric it called "delighted ARR," which he described as "the ARR only from customers who are super engaged with the product." The metric showed how sticky those customers were and how long they were likely to stay, he said. "Those users are now still users, those companies are now still customers."

His advice to founders was to set the benchmark before quoting the number. "Figure out what benchmark [is] good, great, and excellent for your space," he said. He advises startups to track customer engagement and dollar retention, especially for consumer products.

A retention number without a sector reference point is hard for an allocator to judge, and pilot revenue counted inside ARR cannot be compared with a manager that excludes it. Bharadwaj's line to founders was blunter: "It's definitely in your long-term interest that you be very honest and upfront about what quality of revenue this is."