Why AI startups are selling the same equity at two different prices
VCs now invest in single rounds at two different prices to manufacture billion-dollar valuations.
In a competitive AI funding market, startups like synthetic-customer research firm Aaru and IT help desk startup Serval are employing a novel dual-valuation strategy within single funding rounds. Lead investors, such as Redpoint for Aaru and Sequoia for Serval, split their capital between a lower valuation (e.g., $450M for Aaru) and a headline 'unicorn' valuation (e.g., $1B). Other investors join only at the higher price. This structure, first reported by TechCrunch and The Wall Street Journal, consolidates what would have been two separate funding cycles, allowing founders to claim billion-dollar status and scare off competitors while minimizing fundraising distractions.
This tactic creates a powerful market signal for recruiting talent and attracting customers, but carries significant risk. The 'blended' valuation for the lead VC is much lower than the headline figure. As Primary Ventures' Jason Shuman notes, these companies are now pressured to raise their *next* round above the $1B headline to avoid a punitive down round, which would dilute employee equity and erode market confidence. Investors like FPV Ventures' Wesley Chan see this as bubble-like behavior, comparing it to airlines selling the same seat at different prices. The strategy highlights the intense competition among VCs to secure spots on hot AI cap tables, even if it means inflating valuations artificially.
- Aaru's Series A led by Redpoint used a dual-valuation structure: part at $450M, part at $1B, creating a unicorn headline.
- Serval's $75M Series B saw Sequoia invest at a $400M entry point, while the company announced a $1B valuation.
- The strategy risks future down rounds if startups can't justify the inflated headline price, potentially harming employee equity and investor confidence.
Why It Matters
Inflated valuations distort market competition, create unrealistic expectations for future funding, and risk significant dilution for employees in a downturn.