You’ve planned a long drive. You’ve checked the mileage, the tyre pressure, the engine oil, even the service history. Everything looks perfect, until the car suddenly slows, sputters, and stops. Only then do you realise you never checked the most basic thing of all: how much fuel was actually left in the tank.
It’s a surprisingly familiar pattern in our start-up ecosystem. We track the glossy headline numbers like revenue spikes, ARR jumps, GMV surges, but overlook the indicators that tell us whether the business can actually keep moving. And just like that silent fuel tank, the underlying quality of revenue is often what determines how far a company can really go.
Across the ecosystem, we increasingly see early-stage start-ups, and sometimes even investors, relying on metrics that unintentionally inflate the perception of growth. The intention isn’t necessarily deceptive, but often a blend of optimism, pressure, and the classic start-up instinct to “show progress”. But for founders and investors, understanding these inflation levers is essential.
Because revenue should be a measure of traction, not storytelling.
1. Unbilled Revenue: The Most Common Boost
Unbilled revenue appears when a start-up has delivered work but not yet invoiced it. This is perfectly legitimate if handled correctly, but becomes an issue when unbilled revenue is included under “monthly revenue” in an MIS or rolled into run-rate projections without clarity on:
- whether the client has accepted the milestone,
- whether the invoice will actually be raised,
- whether the payment will ever be collected.
In a fast-moving early-stage environment, unbilled revenue turns into a cushion to meet targets. Unbilled revenue for project-based start-ups can sometimes exceed billed revenue, this creates the illusion of growth while cash balances do not reflect the true picture.
If invoicing lags collections, and collections lag work delivered, then “revenue” becomes a number that doesn’t reflect real business activity.
2. Gross Merchandise Value (GMV): Where Scale gets Exaggerated
GMV is useful to understand marketplace activity, but it is not revenue. Many early-stage companies highlight GMV growth as a proxy for top-line strength. The inflation happens when:
- GMV is presented as “revenue run-rate,”
- GMV growth is marketed as business growth even when take-rates fall,
- Investors only see GMV, not the piece of it that the start-up actually earns.
A ₹100 crore GMV business with a 3% take-rate is a ₹3 crore revenue business. But only one of these numbers makes it to pitch decks’ headlines.
3. Annual Recurring Revenue (ARR): The Metric With the Widest Interpretation
ARR should represent contracted, recurring, and collectible subscription revenue. But in early-stage companies, especially SaaS, ARR sometimes expands into:
- Pipeline ARR: deals expected to close, but not closed
- Including customers signed but not live, or including customers who purchased usage credits but may never consume them
- Counting the full contract value even if discounts, pauses, or usage variability apply
The boundary between “recurring” and “hoped to recur” gets blurry very quickly.
4. Run-Rate Revenue: Multiplying Hope by 12
Run-rate revenue is a simple formula: Revenue from a recent period multiplied by the number of periods.
It could also be: Revenue from an exceptionally strong month multiplied by the number of periods.
This is a metric that’s useful in stable and predictable businesses but could be extremely problematic if applied to early-stage volatility. Inflation could emerge when:
- one unusually large client payment is annualized,
- a temporary contract is treated as recurring,
- promotions/discounts artificially boost a single month.
5. Deferred Revenue Misinterpretation: Cash vs Delivery
For prepaid models, money often arrives before work is performed. Some early-stage start-ups report this inflow as “revenue,” even when the service period extends months ahead. This inflates revenue, profitability, and cash conversion metrics. Deferred revenue is a liability for a reason, as you owe the service. It’s not performance; it’s obligation.
Why This Matters: Inflated Revenue Isn’t Just an Accounting Issue
When revenue metrics drift into optimism, three risks compound:
- Decision-making: Hiring plans, marketing spend, and fundraising pitches get built on exaggerated signals
- Investor trust risk: Strong early traction is compelling but restatements later can seriously damage trust and valuations
- Survival risk: Cash flow realities eventually surface and a business built on inflated revenue numbers collapses inward when the cash cycle doesn’t support the story.
Building Honesty Into the MIS: What Good Practice Looks Like
The strongest founders we work with do three things consistently:
- Separate every bucket
- GMV (separate from revenue)
- Billed revenue
- Collected revenue
- Unbilled/contract revenue
- Deferred revenue
- ARR (with clear definitions)
- Apply conservatism in internal reporting: Internal MIS should ground the company, not flatter it. Strip out noise and optimism so decisions are made on reality, not optimism.
- Build a revenue bridge each month: Start with last month’s revenue, add what was booked, subtract what was delivered, show what was billed and collected, and clearly separate what is still unbilled or deferred.
The Takeaway: In Early-Stage Companies, Transparency Outperforms Storytelling
Inflated revenue metrics might help win the next call, the next demo, or even the next investor meeting, but they build fragility into the system.
Founders who build disciplined revenue reporting early and investors who ask the right questions end up with cleaner models, better decisions, stronger teams, and start-ups that scale on real traction not inflated dashboards.
Sustainable growth isn’t measured by how big the revenue number looks, but by how honestly it’s earned.
Author,
Ragini Ramanujam
