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The surge in investment within the tech landscape, particularly around AI, is reminiscent of previous Silicon Valley phenomena—an influx of venture capital directed towards the latest trend. However, today’s environment is distinguished by the remarkable pace at which startups can ascend to annual recurring revenue (ARR) figures as high as $100 million, occasionally within just a few months.
There’s a prevailing sentiment among investors that many are unwilling to consider any startup not racing towards that $100 million ARR milestone prior to their Series A funding.
Jennifer Li, a general partner at Andreessen Horowitz who oversees a number of the firm’s significant AI ventures, cautions that much of the enthusiasm surrounding ARR is founded on misconceptions.
“Not all ARR is created equal, just as not all growth can be treated the same,” Li noted during an episode of TechCrunch’s Equity podcast. She emphasized the need for skepticism regarding any founder who posts impressive ARR figures or growth metrics on social media.
Legitimately, annual recurring revenue is a well-defined accounting term, representing the yearly value of contracted subscription revenue. This denotes a steady income stream derived from customers bound by contracts.
However, what many founders are discussing on social media platforms is often just the “revenue run rate”—a calculation based merely on the income taken over a brief period, annualized—and that is fundamentally different.
“Essential business nuances, such as quality, customer retention, and revenue durability, are frequently overlooked,” Li cautioned.
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June 23, 2026
While a founder may experience a remarkable month of sales, such success isn’t guaranteed to persist in subsequent months. Additionally, many startups may attract a host of temporary customers engaged in pilot programs, leading to uncertainty about sustained revenue once those pilots conclude.
Typically, growth claims shared on social platforms should be approached with caution—it’s wise to not take everything at face value online.
However, because rapid growth is a common trait among AI startups, such proclamations generate “considerable anxiety” among novice founders who aspire to replicate these instant successes.
Li’s perspective? “You don’t. While aspiring for such rapid growth is commendable, it isn’t necessary to shape your business solely around extreme top-line growth.”
She proposed an alternative mindset: focusing on sustainable growth, where customers remain loyal and increase their spending over time. This could translate to “growing 5x or 10x year-on-year,” as illustrated by potential growth from $1 million to anywhere between $5 million to $10 million in the first year, scaling up to $25 million or $50 million in the second year, and beyond.
Li highlighted that this kind of expansion, although unprecedented, is attainable if complemented by high customer satisfaction and retention, attracting investors eager to support such ventures.
Of course, several of the firms within Li’s portfolio at a16z have achieved these impressive ARR milestones, such as Cursor, ElevenLabs, and Fal.ai. However, their success ties back to the creation of robust business models, according to Li, asserting, “There are solid reasons supporting each of these achievements.”
Nonetheless, this type of rapid growth brings its own set of operational challenges, especially in hiring practices.
“The question is not just how fast we hire, but how to find the right individuals who can truly thrive in this accelerated environment,” she remarked. The answer is a complex one.
This means that the initial 100 hires may have to juggle multiple roles, increasing the likelihood of misinterpretations occurring. For example, last year, Cursor faced backlash from its customers due to a poorly implemented pricing adjustment.
Li also mentioned that these fast-expanding startups often confront legal and compliance hurdles without a strong infrastructure in place, or must navigate new challenges inherent to operating during the AI age, such as combating deepfakes.
Thus, while achieving rapid growth can be a favorable challenge, it also serves as a reminder to “be careful what you wish for.”
Listen to the full episode here:
### Hustle Verdict
Our take is that the ongoing discussion around annual recurring revenue versus revenue run rate encapsulates a critical turning point for the tech industry. We believe that an emphasis on sustainable growth over meteoric rises will redefine investor expectations and shape a healthier ecosystem. The bottom line is that this shift toward valuing quality over quantity could pave the way for more resilient startups capable of navigating future challenges effectively.
