Startup ARR is less secure than ever, new research shows

Enterprise AI Spending and Pilot Success Rates

The AI era has completely broken enterprise buying patterns, and startups haven't yet figured out how to navigate.

AI has ushered in a lot of never-happened-before moments, but one of the most transformative is its impact on enterprise IT. Companies that have historically been cautious and committed long-term to what they buy are on pace to spend $4.25 trillion on technology in 2026, market researcher IDC predicts. It's almost all driven by AI.

New research from venture capital firm Madrona shows that 74% of 150 enterprise IT professionals it surveyed plan to expand their AI budgets in the next 12 months, and the rest plan to hold spending steady. Yet these same enterprises say that fewer than half of their AI pilots ever make it into full production. That's actually an improvement. Last year, MIT famously reported that 95% of enterprise AI projects had failed in terms of ROI. Fewer than half succeeding is a pretty low bar, but it's better than a 5% success rate.

Vendors Face Relentless Re-evaluation

But the most telling finding from Madrona's report is that, even when an enterprise does roll out the AI tech, it doesn't commit to it long term. Some 77% of enterprises re-evaluate their AI vendors every six months or even on a rolling basis.

"This creates a 'fast in, fast out' dynamic that is fundamentally different from traditional enterprise SaaS, where multi-year contracts provided a moat of inertia," Madrona writes in the report. "In enterprise AI, switching costs are lower and the re-evaluation cadence is relentless."

ARR Growth No Longer Secures Long-Term Revenue

This has widespread implications for all those fast-growing annual recurring revenue (ARR) numbers startups report. Enterprise trial budgets are what fueled the initial AI boom of 2025. This year was supposed to be the year these big customers settled in and started committing long term to AI startups. Enterprise contracts are what allow so many AI startups to claim astronomically fast