Why AI startups are selling the same equity at two different prices

Source: TechCrunch

The multi‑tiered valuation tactic

Until recently, the most sought‑after companies raised multiple rounds of funding in quick succession at escalating valuations. Because constant fundraising distracts founders from building their products, lead VCs have devised a pricing structure that effectively consolidates what would have been two separate funding cycles into one round.

The approach allows desirable startups to call themselves unicorns—valued at more than $1 billion—even though a significant portion of the equity was acquired at a lower price. The massive “headline” valuation creates the aura of a market winner, even though the lead VC’s average price was significantly lower.

“It is a sign that the market is incredibly competitive for venture capital firms to win deals. If the headline number is huge, it’s also an incredible strategy to scare away other VCs from backing the number two and number three players.” – Jason Shuman, General Partner at Primary Ventures

How it works

1. Lead investor splits its capital between two valuation tiers within a single round.
2. Top‑tier investors receive a discount (lower valuation) in exchange for the strategic signal they provide.
3. Other investors are offered a higher price (higher valuation) to secure a spot on a high‑demand cap table.
4. The company announces the higher “headline” valuation, which it can use for recruiting talent, attracting customers, and positioning itself as a market leader.

Real‑world examples

• Aaru – A synthetic‑customer‑research startup raised a Series A led by Redpoint. Redpoint invested a large portion at a $450 million valuation and a smaller portion at a $1 billion valuation. Other VCs joined at the $1 billion price point.

  • Wall Street Journal report
  • TechCrunch coverage

• Serval – An AI‑powered IT help‑desk startup received a low entry price of $400 million from Sequoia, while its $75 million Series B announced a $1 billion valuation.

  • Wall Street Journal article (link retained from original source)

Risks and criticisms

• Blended valuation lower than headline – The true, blended valuation may be well below $1 billion, creating pressure to raise the next round at an even higher price or face a punitive down round.
• Down‑round consequences – Employees and founders see their ownership percentages shrink, and confidence among partners, customers, and future investors can erode.
• Market‑reset warning – Jack Selby, Managing Director at Thiel Capital, cautions that chasing extreme valuations is a dangerous game, referencing the painful market reset of 2022.

  “If you put yourself on this high‑wire act, it’s very easy to fall off.” – Jack Selby

Industry perspective

Wesley Chan, co‑founder and managing partner at FPV Ventures, views the tactic as a symptom of bubble‑like behavior:

“You can’t sell the same product at two different prices. Only airlines can get away with this.”

In most cases, founders offer a discount to top‑tier VCs because their involvement serves as a powerful market signal that helps attract talent and future capital. By allowing additional investors to participate at a higher price, startups can accommodate oversubscription without turning away eager capital, albeit at the cost of a potentially inflated public valuation.