Sequoia faces criticism over dual-pricing valuation tactics

In recent days, founders and founders-turned-investors took to X to share stories about mistreatment by venture capitalists. Brendan Foody, co-founder of the AI talent platform Mercor, which was valued at $10 billion, publicly accused Sequoia of employing “dual-pricing valuation tricks” to inflate startup valuations. Foody labeled the practice a “Sequoia scam,” writing on X that over a six-month timeframe, he has seen a half-dozen rounds where Sequoia invests in two tranches. According to Foody, “everyone pretends they only did the higher valuation,” and founders misrepresent this to employees and angel investors.

The dual-pricing mechanism allows a startup to announce a high headline valuation while the lead investor enters at a lower average cost. For example, the AI-driven IT help desk startup Serval announced a $75 million Series B round at a $1 billion valuation led by Sequoia. However, the company had been valued at less than $400 million days earlier during a Series A extension. Similarly, at the startup Aaru, lead investor Redpoint backed the company at a $450 million valuation despite an announced $1 billion headline price. While these dual-pricing structures help attract talent by inflating a startup’s perceived worth, they complicate private market valuations.

Sequoia partner Shaun Maguire pushed back, arguing that the practice is a market reality driven by competitive demand rather than an attempt to “mislead people.” Maguire stated that this has happened approximately five times during his seven years at Sequoia. He explained that when other investors are willing to pay multiples above what Sequoia is willing to pay, the firm tries to decouple the company-building relationship from the capital, leading to two tranches at different valuations in close succession. Maguire added that venture capital is a repeated game where misleading people does not make sense.

The debate also highlights broader transparency issues. Employee stock options are theoretically priced based on the blended value of all tranches using 409A appraisals—an independent valuation used to set strike prices for employee stock options. However, 409A valuations are widely understood to skew low. Beyond dual-pricing, industry experts note that startups and investors often engage in “manipulating or outright overstating annual recurring revenue (ARR)“—Annual Recurring Revenue, a key metric for SaaS companies—to project success. Niko Bonatsos, founder of Verdict Capital, addressed this last month in Athens, noting that some founders inflate their ARR by multiplying a single day’s successful campaign revenue by 365.

Why it matters

The controversy over dual-pricing and ARR manipulation highlights a broader lack of transparency in private market valuations, which can mislead employees and investors about a company’s true financial health.