Mercor’s Brendan Foody calls out Sequoia, accusing it of ‘dual-pricing’ valuation tricks

2026-06-09 · Source: TechCrunch · Field: Finance & Economics — Capital Markets & Investment Management, Entrepreneurship & Start-ups, Corporate Finance & Treasury · Depth: Intermediate, medium

Summary

Brendan Foody, co-founder of the AI talent platform Mercor, recently valued at \$10 billion, accused elite VC firm Sequoia of "dual-pricing" valuation tricks. This practice involves VCs investing a large portion of capital at a lower, preferential valuation while a smaller portion receives a much higher "headline" valuation, creating a perception of greater market success. Examples include AI startup Serval, which announced a \$1 billion valuation led by Sequoia, despite a Series A extension valuing it at less than \$400 million days prior. Similarly, Aaru, backed by Redpoint, had a \$450 million valuation against a \$1 billion headline. Sequoia's Shaun Maguire defended the practice as a market reality, stating other investors pay higher prices for hot companies, leading to two tranches. The article also notes implications for employee stock options, which should be based on blended value via 409A appraisals, and angel investors who lack such protection. Beyond dual-pricing, the manipulation of annual recurring revenue (ARR) is highlighted as another tactic to inflate perceived success.

Key takeaway

For investors evaluating AI startups or entrepreneurs seeking funding, scrutinize reported valuations closely. Understand that "dual-pricing" structures, where VCs invest at different valuations within the same round, can inflate headline figures, potentially misleading employees and angel investors. Always request detailed cap tables and 409A appraisals to ascertain the true blended valuation and ensure fair equity pricing. Be wary of inflated ARR claims, as these also distort a company's actual financial health.

Key insights

Venture capital firms sometimes use "dual-pricing" to invest at lower valuations while promoting higher "headline" figures.

Principles

• Headline valuations can mask actual investor entry prices.
• Employee stock options should be based on blended valuations, not headline figures.
• 409A appraisals are designed to protect employees but often skew low.

In practice

• Scrutinize startup valuations for multi-tranche funding structures.
• Verify 409A appraisal details for employee equity strike prices.

Topics

• Venture Capital
• Startup Valuation
• Dual-Pricing
• Employee Equity
• 409A Appraisals
• AI Startups

Best for: Entrepreneur, Investor, Tech Journalist

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Editorial summary, takeaway, and curation by AIssential. Original article published by TechCrunch.