But are we even making money on these users? We scarcely have any data on the cost side of the venture. Yet, any AI-based business offering a free tier subscription is at a clear disadvantage. They have to shoulder all those free-loaders with the thin margins from paying customers.
That would be all true even if all money came through subscriptions, and not usage.
These days, the race to fastest ARR growth is as much a lie for software businesses as it is for service businesses.
Great stuff
Love this, Nikunj! As someone who is joining an early-stage startup, this is so helpful to ask the right questions and negotiate better!
This should be required reading for anyone in startupland that's past "I just need the experience mode" and understands the opportunity cost of time.
Share it with a friend!
oh this is good, this might be my fav one of yours so far
Love the piece, Nikunj! So much value honestly.
"[Software companies] claim “fastest to $100M ARR.” They raise at software multiples while running completely different economics."
And that's as much of a lie as calling transactional business "ARR."
Lovable's "fastest to $100M ARR" is a vanity metric altogether. It's the 2025 version of "we have plenty of registered users." ( https://pawelbrodzinski.substack.com/p/lovables-arr-is-vanity-metric-20 )
But are we even making money on these users? We scarcely have any data on the cost side of the venture. Yet, any AI-based business offering a free tier subscription is at a clear disadvantage. They have to shoulder all those free-loaders with the thin margins from paying customers.
That would be all true even if all money came through subscriptions, and not usage.
These days, the race to fastest ARR growth is as much a lie for software businesses as it is for service businesses.
A very interesting read!
Every VC should read this