Sequoia Admits Dual-Pricing in AI Startup Rounds
Key insights
- Sequoia partner Shaun Maguire acknowledged using dual-pricing approximately five times during his seven-year tenure at the firm.
- Serval's announced $1 billion Series B valuation was more than double the under-$400 million figure from its Series A extension days earlier.
- 409A appraisals, which set employee option strike prices, theoretically use blended valuations but tend to skew conservatively low.
Why this matters
Dual-pricing obscures the real economics of AI fundraising, leaving employees, co-investors, and press relying on headline valuations that may bear little resemblance to actual cap table structure. Foody's call-out, backed by the specific example of Serval's $75 million round, creates reputational pressure on top-tier VCs at a moment when AI startup valuations face growing scrutiny from LPs and secondary market participants. If the norm shifts toward disclosing average entry prices alongside headline figures, it would change how AI unicorn milestones are reported and how employee equity is priced at issuance.
Summary
Mercor co-founder Brendan Foody called out Sequoia Capital for "dual-pricing" AI startup rounds, a structure where the firm invests a large tranche at a lower valuation while announcing a higher headline figure to the public.
The example: Serval announced a $75 million Series B at a $1 billion valuation led by Sequoia, just days after a Series A extension had valued the company at under $400 million.
Essentially: (Foody, Sequoia partner Shaun Maguire) are now on record over whether this is valuation inflation or competitive market reality.
- Maguire acknowledged the practice, citing approximately five instances during his seven years at Sequoia.
- He framed it as a response to rivals willing to pay higher prices, forcing Sequoia to separate its investment relationship from capital allocation.
Foody's $10 billion platform gives him standing to name this publicly, increasing pressure on VCs to disclose average entry prices alongside headline figures.
Potential risks and opportunities
Risks
- AI startup employees with options priced via 409A appraisals may see strike prices that don't reflect Sequoia's actual lower-tranche entry price, structurally reducing equity upside at liquidity events.
- Serval and other AI startups identified as having dual-priced rounds face credibility challenges with enterprise customers, future co-investors, and acquirers who benchmarked against the headline $1 billion figure.
- Sequoia faces LP pressure to audit the approximately five acknowledged dual-pricing instances and potential regulatory scrutiny if any of those companies pursue public listings.
Opportunities
- Founders with strong deal leverage can now push back on dual-pricing structures in term sheet negotiations, citing Maguire's public acknowledgment as evidence the practice is under scrutiny.
- Competing AI-focused VCs that do not use dual-pricing structures have a differentiation opportunity with founders prioritizing transparent cap tables and clean valuation mechanics.
- Law firms and financial advisors specializing in AI startup fundraising can expand advisory practices around term sheet analysis as founders increasingly scrutinize valuation tranche structures.
What we don't know yet
- Whether any AI startups beyond Serval that received dual-priced Sequoia rounds have been publicly identified or consented to disclosure.
- How dual-pricing structures interact with SEC disclosure obligations for investors in companies with broad secondary markets or approaching public listings.
- Whether Mercor itself has received dual-pricing term sheets from any investors, and how Foody responded to them.
Originally reported by TechCrunch
Read the original article →Original headline: Mercor CEO Brendan Foody Publicly Accuses Sequoia of 'Dual-Pricing' Valuation Scam Across Six AI Startup Rounds — Firm Acknowledges Practice