The venture capital world has seen a wave of founders and investor-turned-founders posting about negative experiences with VCs on X in recent days. Stories ranged from investors falling asleep during pitch meetings to suggestions that a founder fire a co-founder.
Brendan Foody, co-founder of AI talent platform Mercor, a company last valued at $10 billion, went further by calling out Sequoia, one of the most prestigious venture firms globally.
Founder Calls Out Sequoia Over Dual Pricing
"The 'sequoia scam' is worse than a single horror story," Foody wrote on X. "In the last 6 months I've seen a half dozen rounds where Sequoia invests in 2 tranches. Everyone pretends they only did the higher valuation. Founders misrepresent this to their employees and then shop it to angels too."
TechCrunch has previously reported on VCs investing in the same round at different valuations. Under this mechanism, the lead firm puts a large portion of capital at a lower, preferential valuation and a much smaller amount at a much higher price. The announced headline valuation creates an impression of a dominant market winner, masking that the lead investor's average entry price was significantly lower.
The gap can be stark. For example, when AI-driven IT helpdesk startup Serval announced a $75 million Series B at a $1 billion valuation, the full picture was different. According to The Wall Street Journal, Sequoia's actual lowest entry point valued the company at just $400 million, less than half the headline figure. That difference between perception and reality is what Foody highlighted.
Serval is not alone. At Aaru, a startup that uses AI to simulate user behavior for market research, lead investor Redpoint backed the company at a $450 million valuation despite an announced $1 billion headline price.
Sequoia Responds
Sequoia partner Shaun Maguire pushed back on Foody's characterization. "TBH I have seen some of this behavior but I think it's unfair to call it the 'Sequoia scam,'" Maguire wrote in response on X. "This has happened approximately five times during my seven years at Sequoia. What happens is other investors are willing to pay a high price for a hot company, usually AI, at multiples above what we're willing to pay. So we try to decouple the company-building relationship with our partner from the capital, and this leads to two tranches at different valuations in close succession."
"I'm not aware of anything shady here," Maguire continued. "But if you've seen it I'd love to know. VC is a repeated game, so it just doesn't make sense for us to try to mislead people. And in general, congrats on the success of Mercor, it was a miss for us."
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Maguire's response frames the practice as a market reality rather than a deliberate maneuver. Sequoia, he suggests, is simply unwilling to pay what competitors will pay for the hottest deals, so it structures its participation differently. Whether that explanation fully holds depends on a question Maguire did not address: what founders are telling the people who do not already know about the lower tranche.
Although Sequoia appears to use this pricing mechanism most frequently, Foody acknowledged it is not the only firm using the tactic. And while the dual-pricing structures inflate a startup's perceived worth and help attract top talent, calling the practice a "scam" may be going too far.
That is because employee stock options should theoretically be priced based on the blended value of all tranches, not the headline number, according to Jason Woo, partner in valuation and financial modeling at Armanino. His firm provides independent 409A appraisals that startups use to set option prices. A 409A is supposed to reflect a company's fair market value, giving employees a strike price insulated from whatever valuation is announced in a press release.
There is a catch: 409A valuations are widely understood to skew low. Because a lower strike price means a smaller tax bill for the company, there is a structural incentive to keep that number down. The appraisal designed to protect employees from an inflated headline valuation is also, by design, not trying particularly hard to reach the top of the range.
Wider Implications
The angel question is more complicated. Unlike employees, angels are writing checks, not receiving options. No independent appraiser stands between an angel investor and whatever number a founder chooses to share.
The dual-pricing structure is just one way VCs and founders game the perception of success in a hyper-competitive market. Another more pervasive tactic involves manipulating or outright overstating annual recurring revenue (ARR).
VC Niko Bonatsos, a longtime veteran of General Catalyst who more recently founded Verdict Capital, addressed the issue during a TechCrunch event in Athens last month. "We [at Verdict] mostly invest before metrics, before product, before the company [has fully taken shape] but I do have a past portfolio, and sometimes the conversations are telling. I'll get a call or an email with a very high ARR number. I'll think: I didn't remember that company doing so well. So I reach out to the founder: 'What happened? Why are the numbers so strong?' And the answer is: 'Oh yeah, it's 365 times the revenue we made yesterday because one of our campaigns hit.' So yeah, some of these terms have lost meaning."
Foody declined to comment further. Sequoia did not immediately respond to a request for comment., With additional reporting from Connie Loizos