Mercor co-founder criticizes Sequoia over “dual-pricing” in funding rounds

In short: A startup founder says some investors are buying shares at two different prices in the same funding round, and he called out Sequoia for doing it.

What's going on

Brendan Foody, co-founder of the AI hiring platform Mercor, posted on X that he has seen several deals where Sequoia invests in two “tranches” (two parts of the same deal). He said one part is priced lower and another part is priced much higher, and people publicly talk as if only the higher price happened.

This practice is often called “dual-pricing.” It is like selling the same item with two price tags, depending on who is buying. TechCrunch previously reported that this can create a big headline number for a startup’s valuation (what the company is said to be worth), even if the lead investor’s average purchase price was lower.

TechCrunch gave an example involving Serval, an AI IT helpdesk startup. Serval announced a $75 million Series B at a $1 billion valuation, but The Wall Street Journal reported that Sequoia’s lowest entry point valued the company at about $400 million. Another example was Aaru, where Redpoint reportedly invested at $450 million even though the announced headline valuation was $1 billion.

Sequoia partner Shaun Maguire responded on X, saying he has seen this behavior but it is unfair to call it a “scam.” He said it can happen when other investors are willing to pay more for a hot company, often an AI startup, and Sequoia structures its participation differently.

What to watch

A key question is what founders tell employees and smaller investors about these lower-priced parts of a deal. Employees usually get stock options, which rely on a separate valuation called a 409A (an outside estimate used to set option prices), but smaller investors writing checks may not have that kind of guardrail.

Source: TechCrunch AI