Mercor’s Brendan Foody calls out Sequoia, accusing it of ‘dual-pricing’ valuation tricks

Their complaints ranged from VCs falling asleep during pitch meetings to investors suggesting a founder fire a co-founder. Brendan Foody, co-founder of the AI talent platform Mercor, which was last valued at $10 billion, went so far as to call out Sequoia, arguably one of the most elite VC firms in the world. Under this mechanism, the lead VC firm invests a significant chunk of its capital at a lower, preferential valuation, while putting a much smaller portion of capital in at a drastically higher price.

The massive “headline” valuation that gets announced manufactures the perception of a dominant market winner, masking the fact that the lead investor’s actual average entry price was significantly lower. The disparity can be stark. For example, when the AI-driven IT help desk startup Serval announced a $75 million Series B at a $1 billion valuation led by Sequoia, the announcement didn’t tell the whole story, according to The Wall Street Journal.

Days earlier, said the Journal, the company had been valued at less than $400 million as part of a Series A extension in which Sequoia participated — less than half the headline figure. The gap between those two numbers is the gap between perception and reality that Foody is pointing at. At Aaru, a startup that uses AI to simulate user behavior for market research, lead investor Redpoint backed the company at a $450 million valuation despite an announced $1 billion headline price.

Sequoia’s Shaun Maguire pushed back on Foody’s characterization directly. What happens is other investors are willing to pay a high price for a hot company — usually AI — at multiples above what we’re willing to pay. So we try to decouple the company-building relationship with our partner from the capital, and this leads to two tranches at different valuations in close succession. var playerInstance_jwplayer_6a7924134465d = jwplayer( "jwplayer_6a7924134465d" ); playerInstance_jwplayer_6a7924134465d.setup(); “I’m not aware of anything shady here,” Maguire continued, “but if you’ve seen it I’d love to know.

VC is a repeated game, so it just doesn’t make sense for us to try to mislead people. And if anyone has, I’d love to know. And in general, congrats on the success of Mercor — it was a miss for us.” Maguire’s response frames the practice as a market reality rather than a deliberate maneuver — Sequoia, he suggests, is simply unwilling to pay what competitors will pay for the hottest deals, so it structures its participation differently.

Whether that explanation fully holds up depends on a question Maguire doesn’t address: what founders are telling the people who don’t already know about the lower tranche. Although Sequoia appears to use this pricing mechanism, Foody acknowledged it isn’t the only firm using this tactic. And while the dual-pricing structures certainly inflate a startup’s perceived worth and help attract top talent, calling the practice a “scam” may be going too far.