ARR vs. Run-Rate Revenue? 9 commonly misused or interchanged startup metrics

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My name’s Nicole - I’m a Principal at an early stage venture fund, and I know firsthand that VC can often be a black box. Breaking into the industry may feel daunting and resources can seem scarce and inaccessible. I wanted to put together a newsletter to give others the playbook I wish I had when I first started.

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Today’s deep dive: Understanding the most commonly misused or interchanged startup metrics

My personal mission is to open as many doors as possible for other people and this newsletter is just one avenue to do that. As always, I will continue to post VC insights daily across my socials for those of you who prefer those channels.

Understanding the most commonly misused or interchanged startup metrics

Metrics aren’t just numbers - they tell the story of your business.

Whether you’re a founder raising capital or a VC evaluating an investment, understanding the nuances of key metrics is crucial.

Misinterpreting or misrepresenting those metrics can lead to:

• Overestimating a company’s performance

• Misaligned investor expectations

• Poor decision-making on growth strategies

Let’s break down 9 of the most commonly misused or interchanged metrics and why they’re important to get right.

Let’s get into it!

1. Gross Revenue vs. Net Revenue

• Gross Revenue: Total income generated before deducting any costs.

• Net Revenue: Income remaining after subtracting refunds, discounts, or allowances.

Why it matters: Gross revenue shows top-line growth, but net revenue reveals how much money is actually retained. Misstating these can exaggerate a company’s scale or profitability.

2. Recurring Revenue vs. Total Revenue

• Recurring Revenue: Predictable, repeated income (e.g., subscriptions). Also known as Annual Recurring Revenue (ARR).

• Total Revenue: All income, including one-time or non-recurring transactions.

Why it matters: Recurring revenue reflects the long-term health and predictability of the business, while total revenue can be inflated by irregular sales.

3. Recurring Revenue vs. Run-Rate Revenue

• Recurring Revenue: Ongoing revenue from active customers.

• Run-Rate Revenue: Projected annual revenue based on a specific period (e.g., monthly revenue × 12).

Why it matters: While run-rate revenue gives a forward-looking estimate, it assumes no churn, which can lead to overly optimistic forecasts if misunderstood.

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