Report Details the Sketchy Technique Allegedly Inflating Valuations of AI Companies

A Wall Street Journal investigation has exposed a controversial practice allegedly inflating valuations of AI startups, raising concerns about market stability in the sector. According to anonymous insiders, companies are arranging simultaneous funding rounds with different investors at wildly different share prices, creating artificial 'unicorn' valuations on paper.

The report cites specific examples: startup Serval reportedly secured a deal with Sequoia Capital late last year valuing it at $400 million, only to have other investors fund it 'days later' at a valuation exceeding $1 billion. Another company, Aaru, allegedly achieved its $1 billion status by offering investment 'tiers'—half its investors valued it at $450 million while the other half accepted terms valuing it at $1 billion. Approximately 20 such deals have occurred in the past 6-12 months.

Venture capitalist Chris Douvos of AHOY Capital told the Journal this practice 'absolutely does inflate valuations' and is used strategically to 'anoint a winner and suck all the air out of the room.' The technique involves a lead investor (like 'Refreshment Capital' in the article's analogy) securing favorable terms, then having smaller investors pay a premium shortly after, instantly inflating the paper value of the lead's stake. This creates a misleading appearance of market validation and rapid growth, complicating true price discovery. The report suggests this could lead to a correction if later-stage investors or public markets refuse to accept these manufactured valuations, potentially destabilizing portions of the AI investment ecosystem.