Brendan Foody, co-founder of the AI talent platform Mercor, which was last valued at $10 billion, has publicly criticized Sequoia, one of the world’s top venture capital firms, for allegedly engaging in dual-pricing strategies that distort startup valuations. Foody accused Sequoia of investing in multiple tranches of the same round at different valuations, with founders misrepresenting the higher valuation to employees and angel investors. 'The “sequoia scam” is worse than a single horror story,' Foody wrote on X, highlighting a pattern he claims has occurred in at least half a dozen rounds over the past six months. This practice, Foody argues, creates a misleading perception of a company’s market dominance while masking the actual lower valuation at which the lead investor entered the deal.

Foody’s allegations are supported by examples such as the AI-driven IT helpdesk startup Serval, which announced a $75 million Series B at a $1 billion valuation. According to The Wall Street Journal, Sequoia’s actual entry point valued the company at just $400 million, less than half the headline figure. Similarly, at Aaru, a startup using AI to simulate user behavior, lead investor Redpoint backed the company at a $450 million valuation, despite an announced $1 billion headline price. These discrepancies, Foody argues, highlight a growing trend in the venture capital industry where the perception of success is manipulated through strategic pricing.

Sequoia’s Shaun Maguire responded directly to Foody’s claims, stating that while he has observed some of this behavior, he does not believe it constitutes a 'scam.' Maguire explained that other investors are often willing to pay higher valuations for hot companies, particularly in AI, and that Sequoia structures its investments to decouple the capital from the company-building relationship. He emphasized that there is no intent to mislead and that the practice is a market reality, not a deliberate deception. However, he did not address whether founders are accurately informing employees and other stakeholders about the lower valuation tranche. Source: techcrunch