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This is an excerpt of Sources by Alex Heath, a newsletter about AI and the tech industry, syndicated just for The Verge subscribers once a week.
A new trend has quickly emerged for AI startups that want to stand out from the rest: brag about revenue.
Take Sierra, Bret Taylor and Clay Bavor’s AI customer support firm that was recently valued at $10 billion. On paper, you’d think Sierra could have its pick of just about anyone who wants to work in AI — both co-founders are well-known names in Silicon Valley, Taylor is also the chairman of OpenAI, and Sierra has raised more than $600 million in less than two years.
But even Sierra feels the need to put a giant number on the board to compete for talent. Taylor told me on Thursday that the company has reached $100 million in annual recurring revenue, up from about $20 million this time last year. Unlike many AI startups now flexing their ARR, Sierra books its revenue through upfront contracts. The company says its customer support agents have already been used by hundreds of millions of people, many of whom wouldn’t know they’re interacting with an AI to process a return or troubleshoot a bug. Its customers include SoFi, Wayfair, Ramp, Rocket Mortgage, and hundreds more.
“I think AI is a category where it’s relatively easy to make a demo and sort of win a popularity contest on social media.”
Taylor spent a good chunk of our conversation explaining why he thinks Sierra’s $100 million means more than the typical AI startup ARR number. Sierra follows the same model used by public enterprise software companies like Salesforce and ServiceNow. It signs at least 12-month, often multi-year contracts, bills annually up front, and gives customers 30 days to pay after signing.
By contrast, many AI startups, especially those with more consumer-ish products or usage-based pricing, reach a public ARR figure by multiplying a good month’s revenue by 12. If growth slows or users churn, that ARR evaporates just as quickly. Taylor’s argument is that Sierra’s number looks more like what public-market investors care about: contracted revenue that’s harder to walk away from.
He wouldn’t name names, but Taylor made it clear that Sierra is trying to separate itself from AI startups that tout ARR off a leaky base of pay-as-you-go users. In those cases, an ARR figure can mask high churn or a product that’s riding a hype wave or temporarily juicing sign-ups with incentives.
“I think AI is a category where it’s relatively easy to make a demo and sort of win a popularity contest on social media,” he said. “But creating a durable revenue stream, especially from serving the Fortune 1000 and regulated industries, is incredibly challenging. I think a lot of people want to work for the leader in the category.”
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