It’s likely safe to say—creative accounting’s been around for as long as accounting itself.
In 1494, for example, mathematician and ‘father of modern accounting’ Luca Pacioli wrote of Venetian merchants willfully rendering their ledgers illegible. In the Gilded Age, inflating assets and understating liabilities was standard practice across a booming system. And who can forget the “channel stuffing” of the 2000s?
And, because some things are eternal, this era naturally has its own creative accounting practices, which I published a feature on this past weekend. Right now, some of the most clear shenanigans are going on around ARR, or “annual recurring revenue.”
“The problem is that so much of this is essentially vibe revenue,” one VC told me. “It’s not Google signing a data center contract. That’s real shit. Some startup that’s using your product temporarily? That’s really not revenue.”
ARR was a favorite metric of VCs throughout the software-as-a-service (SaaS) era, widely accepted as a trusted proxy for a stable and growing startup. Now, founders are trying to apply ARR to the AI boom—and it doesn’t fit. These days, founders are counting pilots, one-time deals, or unactivated contracts as recurring revenue, six VCs told Fortune. The push comes from somewhere very human, from a desire to keep up with the competition.
“There is all this pressure from companies like Decagon, Cursor, and Cognition that are just crushing it,” said another VC. “There’s so much pressure to be the company that went from zero to $100 million in X days.”
At the center of all this is an essential truth: That we’re going to need to evolve metrics with AI, and how AI companies actually work.
And in the meantime, it’s worth saying: Creative accounting has been around as long as businesses were counting, but that doesn’t mean it’s good practice. That doesn’t mean it’s safe or healthy for the system. And it doesn’t mean there won’t be consequences for some down the line.
Term Sheet Podcast…This week’s guest is Hans Tung, managing partner at Notable Capital. Hans first became a VC in his 20s and has gone on to invest in some of the most successful companies of our time: household names like Airbnb, Slack, Coinbase, and Peloton, among others. He was an early backer of Musical.ly, the app that became TikTok. Hans talks about what makes a good investor, his take on AI bubble anxieties, and more. Listen and watch here.
See you tomorrow,
Allie Garfinkle
X: @agarfinks
Email: alexandra.garfinkle@fortune.com
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Venture Deals
- Cerebras Systems, a Sunnyvale, Calif.-based AI chipmaker, raised $1.1 billion in Series G funding. Fidelity Management & Research Company and Atreides Management led the round and were joined by Tiger Global, Valor Equity Partners, 1789 Capital, and others.
- Vercel, a San Francisco-based AI-native infrastructure building platform, raised $300 million in Series F funding. Accel and GIC led the round and were joined by BlackRock, StepStone, Khosla Ventures, Schroders, and others.
- Star Therapeutics, a South San Francisco-based biotechnology company developing antibodies for bleeding disorders and other diseases, raised $125 million in Series D funding. Sanofi Ventures and Viking Global Investors led the round and were joined by others.
- Eve, a San Mateo, Calif.-based legal AI platform for plaintiff law firms, raised $103 million in Series B funding. Spark Capital led the round and was joined by existing investors Andreessen Horowitz, Lightspeed Venture Partners, and Menlo Ventures.
- Axiom Math, a San Francisco-based superintelligence platform, raised $64 million in seed funding. B Capital led the round and was joined by Greycroft, Madrona, and Menlo Ventures.
- Scorability, an Austin, Texas-based athlete recruiting tool for college coaches, raised $40 million in funding. Bluestone Equity Partners led the round and was joined by others.
- RunBuggy, a Tempe, Ariz.-based platform designed to connect car shippers and haulers, raised $37 million in Series B funding. Centana Growth Partners led the round and was joined by OMI Capital.
- Descope, a Los Altos, Calif.-based external IAM platform, raised $35 million in a seed extension from existing investors Notable Capital, Lightspeed Venture Partners, Dell Technologies Capital, and others.
- Commcrete, a Tel Aviv, Israel-based developer of satellite communication systems, raised $29 million in funding across seed and Series A rounds. Greenfield Partners led the $21 million Series A and was joined by Redseed Ventures and existing investors. Professor Amnon Shashua led the seed round and was joined by Q Fund and angel investors.
- MAI, a San Francisco-based platform designed to automate and optimize performance marketing, raised $25 million in seed funding. Kleiner Perkins led the round and was joined by Gaorong Ventures, UpHonest Capital, and others.
- Zania, a Palo Alto, Calif.-based agentic AI company for security governance, risk, and compliance, raised $18 million in Series A funding. NEA led the round and was joined by Anthology Fund, Palm Drive Capital, and others.
- Tie, a Miami, Fla.-based AI-powered identity platform, raised $10 million in Series A funding. Innovating Capital led the round and was joined by Stage 2 Capital, Hawke Ventures, and others.
- Notch.cx, a Tel Aviv, Israel-based AI customer support platform, raised $7 million in seed funding. Lightspeed Venture Partners led the round and was joined by Jibe Ventures, LionTree, Phoenix, and Munich Re Ventures.
- Clarifeye, a Paris, France-based platform designed for enterprises to build expert AI agents at scale, raised €4 million ($4.7 million) in pre-seed funding. EQT Ventures led the round and was joined by Drysdale Ventures, and others.
- Hupside, a Washington, D.C.-based developer of tools designed to measure originality in employees, raised $1.7 million in pre-seed funding. Ruxton Ventures led the round and was joined by angel investors.
Private Equity
- Catchment Capital agreed to acquire a majority stake in Fidus Systems, an Ottawa, Canada-based electronic system design and development company. Financial terms were not disclosed.
- Nuveen acquired a majority stake in Ally Energy Solutions, a Overland Park, Ks.-based energy solutions provider. Financial terms were not disclosed.
- Sunstone Partners acquired a majority stake in Clearwater, a Nashville, Tenn.-based provider of cybersecurity and compliance solutions for the healthcare industry. Financial terms were not disclosed.
People
- Antler, a Singapore-based venture capital firm, hired Christopher Walsh as a partner. Formerly, he was with 7 Global Capital.
