This is a fragment Sources: Alex Heatha newsletter about artificial intelligence and the tech industry, distributed once a week only to The Verge subscribers.
For AI startups looking to stand out from the crowd, a fresh trend has quickly emerged: bragging about revenue.
Take, for example, Bret Taylor and Clay Bavor’s AI customer service company Sierra, which was recently valued at $10 billion. On paper, you’d think Sierra could target almost anyone who wants to work in AI – both co-founders are well-known names in Silicon Valley, Taylor is also the CEO of OpenAI, and Sierra has raised over $600 million in less than two years.
But even Sierra feels the need to put a huge number on the board to compete for talent. Taylor told me Thursday that the company had achieved annual recurring revenue of $100 million, up from about $20 million this time last year. Unlike many AI startups that are currently flexing their ARRs, Sierra books its revenue in the form of upfront contracts. The company says hundreds of millions of people have already used its customer service agents, and many of them had no idea they were interacting with artificial intelligence to process a refund or resolve a problem. Her clients include SoFi, Wayfair, Ramp, Rocket Mortgage and hundreds of others.
“I think AI is a category where it’s relatively easy to create a demo and win a social media popularity contest.”
Taylor spent much of our conversation explaining why he thinks Sierra’s $100 million represents more than the typical AI startup’s ARR number. Sierra follows the same model used by public enterprise software companies such as Salesforce and ServiceNow. It signs at least 12-month, often multi-year contracts, invoices annually in advance and gives customers 30 days to pay after signing.
On the other hand, many AI startups, especially those with more consumer products or usage-based pricing, achieve public ARR by multiplying a good month’s revenue by 12. If growth slows or users churn, ARR evaporates just as quickly. Taylor argues that Sierra’s number more closely resembles what public market investors are interested in: contracted revenues that are harder to walk away from.
He didn’t name names, but Taylor made it clear that Sierra is trying to separate itself from artificial intelligence startups that tout ARR based on its porous pay-as-you-go user base. In these cases, the ARR number may be masking a high churn rate, or a product that is enjoying a wave of hype, or is temporarily encouraging sign-ups with incentives.
“I think artificial intelligence is a category where it’s relatively easy to create a demo and win a social media popularity contest,” he said. “But creating a sustainable revenue stream, especially serving Fortune 1000 companies and regulated industries, is extremely difficult. I think a lot of people want to work for a leader in their category.”
This milestone puts Sierra among the fastest-growing AI companies, although it’s hard to make apples-to-apples comparisons in a world where private companies can define their own metrics.
“There is no official leaderboard, but we believe we are quite far ahead of other companies in our category,” Taylor said. “We want to make sure recruits know this and potential clients know this because I think it sends a signal that we are doing something right, that the product is of high quality and that our clients enjoy working with us and are deeply invested in us.”
Another signal is real estate removals
Here’s the subtext: ARR has quietly become one of the most vital recruiting signals in the AI startup market. Startups tended to make noise in funding rounds or valuations. They still do this, but some also share income data that in another era would have been hidden.
Most recently, the very nice CEO, Anton Osika common at the conference that the company doubled ARR to $200 million in four months, and Cursor this month announced that it exceeded $1 billion in annual revenue. To a recruiter, these revenue statistics are meant to signal that the startup is not just in the hype cycle, but has customers and real driving force.
Taylor’s mental model for what’s happening now is the behind schedule 1990s. “I think the closest equivalent to the AI wave is the dot-com boom or bubble, depending on your level of pessimism,” he said. He then explained that everyone knew e-commerce would grow, but there was a huge difference between working at Buy.com and Amazon.
“As a candidate, you want to work for a company that will ultimately be a leader,” Taylor said. He sees Sierra following this path in terms of AI-powered customer service: a company with real contracts from enormous, often regulated customers.
His hiring plans reflect these ambitions. Today, Sierra employs approximately 300 employees. Taylor wouldn’t set an exact hiring target for next year, but admitted a “double or more” is within reach, driven largely by international expansion and customer-facing roles.
His real estate moves are another signal. Taylor confirmed that Sierra has signed a lease for approximately 300,000 square feet of office space in San Francisco’s China Basin district, a block from Oracle Park. The company will vacate its current building and nearly triple its space, marking the largest office lease in the city since OpenAI acquired the former Ancient Navy headquarters near Chase Center last year.
Taylor is already thinking about what will happen as today’s crop of AI startups matures. He expects the industry to follow a familiar pattern: an early “best-in-class” phase in which specialized tools rapidly develop, followed by a wave of platform consolidation. “Reductively, you either earn the right to consolidate or you get consolidated.” Sierra has no plans to make an acquisition yet, he said, but wants to be in the former camp when that time comes.
All of which explains why a company like Sierra – backed by major investors and led by the former co-CEO of Salesforce who now chairs OpenAI – is touting early earnings. The customer service AI agent market is already crowded, with fresh players like Decagon and incumbents like Intercom and Salesforce competing for the same budgets. In such a world, a startup announcing a nine-figure ARR is a signal of strength to a tiny group of people who can work anywhere.