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

<p id="speakable-summary" class="wp-block-paragraph">As competition among AI startups heats up, founders and VCs are turning to novel valuation mechanisms to manufacture a perception of market dominance.</p>
<p class="wp-block-paragraph">Until recently, the most sought-after companies raised multiple rounds of funding in quick succession at escalating valuations. However, because constant fundraising distracts founders from building their products, lead VCs have devised a new pricing structure that effectively consolidates what would have been two separate funding cycles into one.</p>
<p class="wp-block-paragraph">Recent rounds employing this scheme include Aaru’s Series A. The synthetic-customer research startup raised a round led by Redpoint, which invested a large portion of its check at a $450 million valuation, The <a href="https://www.wsj.com/business/entrepreneurship/the-fundraising-tactic-ai-startups-are-using-to-juice-valuations-91f9ac1f?gaa_at=eafs&amp;gaa_n=AWEtsqerpPk2YjeDj72cd1J5P5PD6lUc35oV9jpPQwa7YQDfqYIsRTjeHdRzctqKNTs%3D&amp;gaa_ts=69a2134e&amp;gaa_sig=GIE00ozPmv1biesM6txognUCURyHO_KifiDHTMrZ8tRnuA8F7hEcJDbxnZLY7kiboxcTJ7BficzzEbAX8wbYLw%3D%3D" target="_blank" rel="noreferrer noopener nofollow">Wall Street Journal reported</a>. Redpoint then invested a smaller portion at a $1 billion valuation, and other <a href="https://techcrunch.com/2025/12/05/ai-synthetic-research-startup-aaru-raised-a-series-a-at-a-1b-headline-valuation/">VCs joined at that same $1 billion</a> price point, according to our reporting. TechCrunch was the first to report <a href="https://techcrunch.com/2025/12/05/ai-synthetic-research-startup-aaru-raised-a-series-a-at-a-1b-headline-valuation/">Aaru’s financing</a>, including its multi-tiered valuation.</p>
<p class="wp-block-paragraph">The approach allows desirable startups like Aaru to call themselves a unicorn — valued at more than $1 billion — even though a significant portion of the equity was acquired at a lower price.</p>
<p class="wp-block-paragraph">“It is a sign that the market is incredibly competitive for venture capital firms to win deals,” said Jason Shuman, a general partner at Primary Ventures. “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.”</p>
<p class="wp-block-paragraph">The massive “headline” valuation creates the aura of a <a href="https://techcrunch.com/2025/12/03/vcs-deploy-kingmaking-strategy-to-crown-ai-winners-in-their-infancy/">market winner</a>, even though the lead VC’s average price was significantly lower.</p>
<p class="wp-block-paragraph">Multiple investors told TechCrunch that until recently, they had never encountered a deal where a lead investor splits their capital between two different valuation tiers in a single round.</p>
<p class="wp-block-paragraph">Wesley Chan, co-founder and managing partner at FPV Ventures, views this valuation 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,” he said.</p>
<p class="wp-block-paragraph">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.</p>
<p class="wp-block-paragraph">But since these rounds are frequently oversubscribed, startups have found a way to accommodate the excess interest: Rather than turning away eager investors, they allow them to participate immediately, but at a significantly higher price. These investors are willing to pay that premium because it is the only way to secure a spot on a high-demand cap table.</p>
<p class="wp-block-paragraph">Another startup that gave preferential pricing to its lead investor is Serval, an AI-powered IT help desk startup, according to The Wall Street Journal. While Sequoia’s lowest entry price was at a $400 million valuation, Serval announced in December that its $75 million Series B valued the company at $1 billion.</p>
<p class="wp-block-paragraph">While the high “headline” valuation can help recruit talent and attract corporate customers who may view the company as having a stronger market position than its competitors, the strategy is not without its risks.</p>
<p class="wp-block-paragraph">Even though the true, blended valuation for these startups is lower than $1 billion, they are expected to raise their next round at a valuation that is higher than the headline price; otherwise it will be a punitive down round, Shuman said.</p>
<p class="wp-block-paragraph">These companies are in high demand now, but they may face unexpected challenges that will make it very hard for them to justify their high valuations. In a <a href="https://techcrunch.com/2024/11/09/vcs-on-how-to-survive-and-thrive-after-a-down-round/">down round</a>, employees and founders end up with a smaller ownership percentage of the company; they can also erode the confidence of partners, customers, future investors, and potential new hires.</p>
<p class="wp-block-paragraph">Jack Selby,  managing director, Thiel Capital and managing partner, Copper Sky, warns founders that chasing extreme valuations is a dangerous game, pointing to the painful market reset of 2022 as a cautionary tale. “If you put yourself on this high-wire act, it’s very easy to fall off,” he said.</p>