Day: October 29, 2025

• The AI boom has produced a surge of “experimental revenue” that might not last, said a Sequoia partner.
• Some startups are annualizing that pilot revenue and calling it recurring revenue, Alfred Lin said.
• He urges investors to focus on revenue quality, not hype-fueled growth.

While AI startups are riding a wave of record valuations, a Sequoia Capital partner said investors should examine the numbers more closely.

Alfred Lin, a partner at Sequoia Capital, said on an episode of the “Sourcery” podcast published Monday that the AI boom has produced a surge of what he calls “experimental revenue” — short-term deals and pilot programs that help startups fund research but might not last.

“People are willing to experiment because they don’t want to be left behind in AI,” he said.

“That’s good and bad. It’s great for founders, they get to finance some of their R&D with revenue. It’s bad because it’s pilot revenue. It may go away,” he added.

Lin, who has backed companies like DoorDash and Airbnb, said some startups are annualizing that pilot revenue and calling it recurring revenue.

“A lot of founders know it’s a joke, but they don’t have any problems just taking whatever month’s revenue is, that’s all pilot revenue, and multiplying by 12,” he said.

Revenue quality matters, like whether customers stick around after the pilot. “Retention is so important,” Lin said.

“I prefer to have slower growth quality revenue than fast growth non-quality revenue,” he added.

Lin also said revenue may not be the best proof of traction for a startup.

“You have to look at the underlying metrics,” he said, adding that some of the best companies took time to build before they hit significant revenue growth.

“The measurement should be about the velocity of the company, not just revenue growth.”

Lin did not respond to a request for comment from Business Insider.

AI gold rush

Lin’s comments come amid growing debate over whether the AI boom could end like the dot-com crash.

AI startups have been raising record amounts of money and soaring in valuations. Replit, which builds tools to let users code apps and websites with AI, expects to top $1 billion in revenue by next year, its CEO and founder, Amjad Masad, told Business Insider last week. That’s about four times its current annual sales of $240 million.

Several investors have warned that the AI market might be overheating and that the market is at risk of going the way of the dot-com bubble burst.

Tech guru Erik Gordon told Business Insider in August that the AI bubble could dwarf the dot-com collapse because of its greater scale.

Gordon, an entrepreneurship professor researching financial markets and technology at the University of Michigan’s Ross School of Business, said in 2022 that AI is an “order-of-magnitude overvaluation bubble.”

OpenAI CEO Sam Altman said in August that it’s “insane” and “not rational” that some tiny AI startups are getting funding at high valuations.

Others disagree. “Shark Tank” investor Kevin O’Leary told Business Insider last month that the AI market isn’t headed for a dot-com-style meltdown.

AI wasn’t “the same hype that the internet bubble was, because today, you actually can see the productivity and measure it on a dollar-by-dollar basis,” he said.