Our Take
Dual-pricing is deliberate perception management, not market necessity—and 409A protections for employees are weaker than advertised.
Why it matters
Founders are using inflated headline valuations to recruit talent and fundraise from angels, while the actual economics are hidden. Employees and early-stage investors are exposed to the gap between announced and real entry prices.
Do this week
Founders: request the blended valuation across all tranches from your lead investor in writing before the press release goes live, so your 409A appraiser can price options fairly.
Sequoia and other top VCs split rounds into two pricing tiers
Brendan Foody, co-founder of AI talent platform Mercor, publicly accused Sequoia of what he calls the "Sequoia scam": investing in the same funding round at two different valuations and announcing only the higher one. In the past six months, Foody claims to have seen half a dozen rounds where Sequoia used this structure, and founders then misrepresented the headline valuation to employees and shopped it to angels.
The mechanism works like this: a lead VC invests a large portion of capital at a lower, preferential valuation, then puts a much smaller amount in at a drastically higher price. The headline valuation gets announced; the lower tranche stays quiet. The gap can be severe. When AI IT helpdesk startup Serval announced a $75 million Series B at a $1 billion valuation led by Sequoia, the company had been valued at less than $400 million just days earlier in a Series A extension that Sequoia also participated in (per The Wall Street Journal). At Aaru, an AI user-behavior simulation platform, lead investor Redpoint backed the company at a $450 million valuation despite announcing a $1 billion headline price.
Sequoia partner Shaun Maguire responded directly to Foody, framing the practice as market reality rather than deception. Other investors are willing to pay higher multiples for hot AI companies than Sequoia is, Maguire wrote. Sequoia decouples the relationship from the capital and structures two tranches in close succession to avoid overpaying. "VC is a repeated game," Maguire said, "so it just doesn't make sense for us to try to mislead people." Foody acknowledged Sequoia is not the only firm using this tactic, and Maguire noted it happens infrequently at Sequoia (approximately five times in seven years).
Employee option pricing and angel terms both suffer from information asymmetry
Dual pricing inflates perceived value and helps founders attract top talent. But the protection mechanisms are weaker than they appear. Employees theoretically should have options priced on the blended value of all tranches, not the headline number. This is where 409A appraisals are supposed to step in—independent valuations that set strike prices based on fair market value, insulating employees from press-release inflation.
The catch: 409A valuations are widely understood to skew low by design. Because a lower strike price reduces the company's tax burden, there is structural incentive to keep that number down. The appraisal meant to protect employees is also not trying hard to reach the top of the valuation range.
Angels face worse exposure. Unlike employees, they are writing checks, not receiving options. There is no independent appraiser between an angel and whatever number a founder chooses to share. They see the headline valuation and assume that reflects the investor's confidence. It often does not.
The dual-pricing structure is one tactic among several. ARR inflation is another. VC Niko Bonatsos, formerly of General Catalyst and now at Verdict Capital, described founders who suddenly claim 365x revenue growth because a single campaign performed well, stripping the term "ARR" of meaning.
Get the full picture before your press release goes live
If you are raising capital, ask your lead investor to disclose the full tranche breakdown and blended valuation in writing before announcement. Share that same breakdown with your 409A appraiser so option strike prices reflect reality, not headlines. When recruiting, be transparent about valuation: tell candidates the blended price, not the announced number. It costs nothing and builds trust.
If you are an angel considering an investment, ask for the full cap table and all prior tranches. A founder who hesitates to show you the lower tranche is telling you something.