Mercor’s Brendan Foody calls out Sequoia over ‘dual-pricing’ valuation tricks
Mercor’s Brendan Foody says Sequoia and others use two-tranche rounds that overstate startup valuations. Sequoia’s Shaun Maguire says it’s market reality, not deception.
Intelligence analysis by GPT-5.4 Mini
Foody argues some VCs use split-price rounds that create a misleading headline valuation while the lead investor gets a lower effective entry point. Sequoia says the structure reflects hot demand for AI deals, but the practice still raises questions about what founders tell employees and angels.
A startup can look like it’s worth one big number on paper, but behind the scenes some investors may pay different prices at the same time. It is like a toy being advertised for $100, while one shopper quietly gets it for $60 and another hears only the $100 price.
Analysis
The dispute
Mercor co-founder Brendan Foody criticized Sequoia on X, saying the firm has been involved in rounds where it invests in two tranches at different valuations. His complaint is not just about one deal, but about a pattern that can make a startup look more valuable than the terms actually suggest.
TechCrunch says this is a known VC tactic: a lead investor puts a meaningful amount into the company at a lower valuation, then a smaller amount at a much higher one. The public announcement can emphasize the higher figure, which makes the company seem like a bigger winner than it really is on average.
The Sequoia response
Sequoia partner Shaun Maguire pushed back. He said the pattern exists, but rejected the idea that it is a “Sequoia scam.” In his view, other investors are often willing to pay more for the hottest AI companies, so Sequoia structures its participation differently rather than overpaying across the board.
That explanation may settle the intent question for some readers, but it does not answer the perception problem Foody raised: what are founders telling employees and outside investors who only hear the headline number?
Why the numbers matter differently
The article notes that employee stock options are supposed to be priced off a 409A valuation, which is based on fair market value rather than the press-release number. Jason Woo of Armanino said option pricing should reflect the blended value across tranches. Still, 409A valuations are commonly low, partly because companies benefit from lower strike prices and lower tax exposure.
For angels, the situation is murkier. They write checks directly and do not have an independent appraiser setting their price. The article also points to a broader pattern in venture markets: inflated ARR claims and other metrics can make companies seem stronger than they are. Niko Bonatsos of Verdict Capital described seeing cases where huge ARR numbers turned out to be driven by one-off spikes, not durable growth.
Key points
- Brendan Foody accused Sequoia of using split-round pricing that inflates public valuations.
- Sequoia’s Shaun Maguire said the structure reflects market reality, not deception.
- The article says employee option prices are based on 409A valuations, not press-release headlines.
- The practice can still mislead founders, employees, and angels about a startup’s real price.
- The story also places this in a broader pattern of AI-era metric inflation, including exaggerated ARR claims.
If the practice is made more transparent, founders, employees, and smaller investors could make better decisions based on the real terms instead of the headline number. The article also suggests 409A pricing can still protect employees from overpaying for options.
If headline valuations keep diverging from actual entry prices, employees and angels may keep making decisions on a misleading picture of demand and value. That can distort hiring, fundraising, and competition for hot AI startups.
