Mercor’s Brendan Foody calls out Sequoia over ‘dual-pricing’ valuation tricks | TechCrunch
In recent days, founders and founders-turned-investors took to X to share horror stories about being mistreated by VCs. 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.
“The “sequoia scam” is worse than a single horror story,” Foody wrote on X. “in the last 6 [months] ive seen a half dozen rounds where sequoia invests in 2 tranches. everyone pretends they only did the higher valuation. founders misrepresent this to their employees & then shop it to angels too.”
TechCrunch has previously reported on VCs investing in the same round at different valuations. 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 helpdesk startup Serval announced a $75 million Series B at a $1 billion valuation, the announcement didn’t tell the whole story. According to The Wall Street Journal, Sequoia’s actual lowest entry point valued the company at just $400 million — less than half the headline figure. The gap between those two numbers is the gap between perception and reality that Foody is pointing at.
Serval isn’t alone. 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. “TBH I have seen some of this behavior but I think it’s unfair to call it the ‘Sequoia scam,’” Maguire wrote in response to Foody on X. “This has happened approximately five times during my seven years at Sequoia. 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.
“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 most frequently, 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.
That’s because employee stock options should theoretically be priced based on the blended value of all tranches — not the headline number — according to Jason Woo, partner in valuation and financial modeling at Armanino, whose firm provides the independent 409A appraisals startups use to set option prices. A 409A is supposed to reflect a company’s fair market value, giving employees a strike price that’s insulated from whatever valuation gets announced in a press release.
There’s a catch: 409A valuations are widely understood to skew low. Because a lower strike price means a smaller tax bill for the company, there is a structural incentive to keep that number down. The appraisal that’s supposed to protect employees from an inflated headline valuation is also, by design, not trying particularly hard to reach the top of the range.
The angel question is more complicated. Unlike employees, angels are writing checks, not receiving options. There is no independent appraiser standing between an angel investor and whatever number a founder chooses to share.
The dual-pricing structure is just one of way VCs and founders game the perception of success in a hyper-competitive market. Another, more pervasive tactic involves manipulating or outright overstating annual recurring revenue (ARR).
The VC Niko Bonatsos, a longtime veteran of General Catalyst who more recently founded Verdict Capital, addressed this issue during one of TechCrunch’s events in Athens last month. “We [at Verdict] mostly invest before metrics, before product, before the company [has fully taken shape] but I do have a past portfolio, and sometimes the conversations are telling. I’ll get a call or an email with a very high ARR number. I’ll think: I didn’t remember that company doing so well. So I reach out to the founder: ‘What happened? Why are the numbers so strong?’ And the answer is: ‘Oh yeah, it’s 365 times the revenue we made yesterday because one of our campaigns hit.’ So yeah, some of these terms have lost meaning.”
Foody declined to comment further. Sequoia didn’t immediately respond to a request for comment.
— With additional reporting from Connie Loizos
In recent days, founders and founders-turned-investors took to X to share horror stories about being mistreated by VCs. 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.
“The “sequoia scam” is worse than a single horror story,” Foody wrote on X. “in the last 6 [months] ive seen a half dozen rounds where sequoia invests in 2 tranches. everyone pretends they only did the higher valuation. founders misrepresent this to their employees & then shop it to angels too.”
TechCrunch has previously reported on VCs investing in the same round at different valuations. 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 helpdesk startup Serval announced a $75 million Series B at a $1 billion valuation, the announcement didn’t tell the whole story. According to The Wall Street Journal, Sequoia’s actual lowest entry point valued the company at just $400 million — less than half the headline figure. The gap between those two numbers is the gap between perception and reality that Foody is pointing at.
Serval isn’t alone. 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. “TBH I have seen some of this behavior but I think it’s unfair to call it the ‘Sequoia scam,’” Maguire wrote in response to Foody on X. “This has happened approximately five times during my seven years at Sequoia. 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.
“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 most frequently, 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.
That’s because employee stock options should theoretically be priced based on the blended value of all tranches — not the headline number — according to Jason Woo, partner in valuation and financial modeling at Armanino, whose firm provides the independent 409A appraisals startups use to set option prices. A 409A is supposed to reflect a company’s fair market value, giving employees a strike price that’s insulated from whatever valuation gets announced in a press release.
There’s a catch: 409A valuations are widely understood to skew low. Because a lower strike price means a smaller tax bill for the company, there is a structural incentive to keep that number down. The appraisal that’s supposed to protect employees from an inflated headline valuation is also, by design, not trying particularly hard to reach the top of the range.
The angel question is more complicated. Unlike employees, angels are writing checks, not receiving options. There is no independent appraiser standing between an angel investor and whatever number a founder chooses to share.
The dual-pricing structure is just one of way VCs and founders game the perception of success in a hyper-competitive market. Another, more pervasive tactic involves manipulating or outright overstating annual recurring revenue (ARR).
The VC Niko Bonatsos, a longtime veteran of General Catalyst who more recently founded Verdict Capital, addressed this issue during one of TechCrunch’s events in Athens last month. “We [at Verdict] mostly invest before metrics, before product, before the company [has fully taken shape] but I do have a past portfolio, and sometimes the conversations are telling. I’ll get a call or an email with a very high ARR number. I’ll think: I didn’t remember that company doing so well. So I reach out to the founder: ‘What happened? Why are the numbers so strong?’ And the answer is: ‘Oh yeah, it’s 365 times the revenue we made yesterday because one of our campaigns hit.’ So yeah, some of these terms have lost meaning.”
Foody declined to comment further. Sequoia didn’t immediately respond to a request for comment.
— With additional reporting from Connie Loizos
When you purchase through links in our articles, we may earn a small commission. This doesn’t affect our editorial independence.
#Mercors #Brendan #Foody #calls #Sequoia #dualpricing #valuation #tricks #TechCrunchMercor,Sequoia Partners,Valuations
![This former notorious red-light district is now one of the world’s top AI hubs | TechCrunch
What every U.K. AI startup wants to know these days is, how can I get office space in King’s Cross?
The area is so hot that a VC firm allegedly recently won a deal by promising a founder office space in the neighborhood. “We stop at nothing to win deals [for] and to support” founders, “including helping them source office space when needed,” the firm told me when asked about the rumor, declining to confirm or deny any details.
The neighborhood’s popularity began back in 2016 when DeepMind — then newly acquired by Google — moved in. Soon after, a flood of AI startups followed, wanting to be around the Google DeepMind magic. Today, they hope to take advantage of the cluster of AI talent there.
This has transformed King’s Cross into one of the world’s top AI hubs, rivaled only by San Francisco and Beijing. Around London, it’s known by the sobriquet “Knowledge Quarter,” as it’s home to names like OpenAI, Meta, Isomorphic Labs, Cusp AI, Wayne, Recursive, and, a little farther down the road, Synthesia and Anthropic. The European Technology Network (ETN) just moved into a glossy new office nearby, while University College London sits around the corner.
Mixed in with the new developments are trendy food spots like Hoppers and BAO. Hop a train from King’s Cross, and founders can be in Cambridge in 45 minutes to source talent or can be in Paris in two hours to strike a deal.
Who would have guessed that a little more than 20 years ago, this was one of the seediest areas in London?
“In the ’80s, crack and heroin made the area a major narcotics market,” Hussein Kanji, an investor at Hoxton Ventures, said, recalling syringes in tree trunks and gangs patrolling the streets. “In 1982, the local church was occupied by the English Collective of Prostitutes for 12 straight days.” Then, in the early 2000s, a real estate developer had a dream and, well, “now it is the AI hotbed of the United Kingdom,” Kanji said. “What a change.” Around 18 months ago, his portfolio company BioCorteX moved from the neighborhood Holborn to the Jellicoe building in King’s Cross, hoping to be near the action. “Lots going on in London right now,” Nik Sharma, co-founder of BioCorteX, told me. “Lots of hyperscalers moving in.” That includes, reportedly, Jeff Bezos’ AI company Prometheus, which is also said to be in talks to move into the Jellicoe.
There are around 3,600 AI startups in London, which, together, have raised around .1 billion out of the .8 billion raised in the city since late July, according to Dealroom. Since the start of June, AI-related startups have leased more than 1 million square feet of office space in London, according to the real estate firm Knight Frank. With that, prime rents in King’s Cross have risen 18% over the past three years, Chris Dunn, a commercial insight associate at the firm, told me. That percentage represents only the largest leases encompassing at least 10,000 square feet, like the ones OpenAI and Prometheus are signing. The shorter deals go for even more, he said, and now the vacancy rate for conventional office space is just 0.9%. “Demand has outstripped supply,” he continued.
Today, one of the big topics of the area is sovereignty. It was a wake-up call for many when Anthropic shut off access to Mythos and Fable this summer, leaving some in the ecosystem to conclude: “We’d better look after ourselves,” Saul Klein, co-founder of the VC firm Phoenix Court, told me.
Phoenix Court is located in the King’s Cross area and has three portfolio companies in the vicinity, including Olix (which just announced a .3 billion valuation), Early Health and CoMind. Robin Klein, co-founder of the firm, said the shutdown of Fable and Mythos access was a “small but sharp reminder that Europe can’t simply rent its AI capabilities and capacity; it needs to build and hold some of its own.” King’s Cross, he said, is where much of this building is actually happening.
“The bigger question,” he continued, “is whether the U.K. builds the infrastructure, compute, energy, capital, to make this self-reliance durable, rather than just hosting outposts of U.S. labs.”
Image Credits:Phoenix Court
Top founders want to stay
Simon Kohl, founder of Latent Labs, has offices in King’s Cross and San Francisco. The London office, at the moment, is growing faster, and he’s more bullish than ever on the ecosystem, he said. “The mood right now feels less like London trying to catch up and more like London becoming one of the default places to start a serious AI company,” he said. Look around and you are likely to see Wayve testing its autonomous cars. Founded in 2017 by co-founder Alex Kendall, the unicorn is one of London’s biggest success stories.
“Ten years ago, building a frontier AI company from London felt like an unusual choice,” Kendall told me. “Now it feels like an obvious one.” Wayve moved into King’s Cross in 2018 looking for a space that could double as a garage — “a rare combination in Central London,” Kendall said. He has watched the ecosystem mature around him — and it’s now evident that a startup can stay in London, raise serious capital, hire world-class AI talent, and remain globally competitive, he said. Down the street from Anthropic’s new 158,000-square-foot office is the AI agent builder Sierra and the AI video platform Synthesia.
Laura Gonzalez Florez, Synthesia’s chief of staff and head of people, says the company moved into its glossy new office building a year ago to accommodate its growing team. They were drawn to the area for the same reason as everyone else: “It’s very close to the airport … very close to where a lot of investors are,” she said.
Image Credits:Synthesia
Around two-thirds of Synthesia’s engineers are remote, Gonzalez Florez said, letting the company tap into an affordable, international, and diverse talent pool and helping it scale faster. “From London, we can hire and work, without any problem, people from anywhere, from Slovenia to Portugal,” she said.
Unsurprisingly, London’s AI boom is also causing a talent war.U.K. AI job postings have skyrocketed in the past few years, per data from PwC. When Anthropic announced it moved into town earlier this year, it listed, for example, a salary range of £260,000 to £630,000 for a machine learning research engineer when the average salary in London for the same role is around £102,000. Some founders in the U.K., like those in Silicon Valley, are being forced to raise more and bigger rounds to keep up.
“The real test is whether more globally significant AI companies are founded, funded, and scaled from the U.K., while continuing to attract the world’s best talent to build them here,” Zain Ali, founder of the King’s Cross-based AI legal firm Centuro, told me. “If that continues to happen, King’s Cross won’t just be an AI hub. It’ll become one of the U.K.’s most important strategic assets.”
When you purchase through links in our articles, we may earn a small commission. This doesn’t affect our editorial independence.#Thisformernotorious #redlight #districtis #nowone #worlds #top #hubs #TechCrunchUK This former notorious red-light district is now one of the world’s top AI hubs | TechCrunch
What every U.K. AI startup wants to know these days is, how can I get office space in King’s Cross?
The area is so hot that a VC firm allegedly recently won a deal by promising a founder office space in the neighborhood. “We stop at nothing to win deals [for] and to support” founders, “including helping them source office space when needed,” the firm told me when asked about the rumor, declining to confirm or deny any details.
The neighborhood’s popularity began back in 2016 when DeepMind — then newly acquired by Google — moved in. Soon after, a flood of AI startups followed, wanting to be around the Google DeepMind magic. Today, they hope to take advantage of the cluster of AI talent there.
This has transformed King’s Cross into one of the world’s top AI hubs, rivaled only by San Francisco and Beijing. Around London, it’s known by the sobriquet “Knowledge Quarter,” as it’s home to names like OpenAI, Meta, Isomorphic Labs, Cusp AI, Wayne, Recursive, and, a little farther down the road, Synthesia and Anthropic. The European Technology Network (ETN) just moved into a glossy new office nearby, while University College London sits around the corner.
Mixed in with the new developments are trendy food spots like Hoppers and BAO. Hop a train from King’s Cross, and founders can be in Cambridge in 45 minutes to source talent or can be in Paris in two hours to strike a deal.
Who would have guessed that a little more than 20 years ago, this was one of the seediest areas in London?
“In the ’80s, crack and heroin made the area a major narcotics market,” Hussein Kanji, an investor at Hoxton Ventures, said, recalling syringes in tree trunks and gangs patrolling the streets. “In 1982, the local church was occupied by the English Collective of Prostitutes for 12 straight days.” Then, in the early 2000s, a real estate developer had a dream and, well, “now it is the AI hotbed of the United Kingdom,” Kanji said. “What a change.” Around 18 months ago, his portfolio company BioCorteX moved from the neighborhood Holborn to the Jellicoe building in King’s Cross, hoping to be near the action. “Lots going on in London right now,” Nik Sharma, co-founder of BioCorteX, told me. “Lots of hyperscalers moving in.” That includes, reportedly, Jeff Bezos’ AI company Prometheus, which is also said to be in talks to move into the Jellicoe.
There are around 3,600 AI startups in London, which, together, have raised around .1 billion out of the .8 billion raised in the city since late July, according to Dealroom. Since the start of June, AI-related startups have leased more than 1 million square feet of office space in London, according to the real estate firm Knight Frank. With that, prime rents in King’s Cross have risen 18% over the past three years, Chris Dunn, a commercial insight associate at the firm, told me. That percentage represents only the largest leases encompassing at least 10,000 square feet, like the ones OpenAI and Prometheus are signing. The shorter deals go for even more, he said, and now the vacancy rate for conventional office space is just 0.9%. “Demand has outstripped supply,” he continued.
Today, one of the big topics of the area is sovereignty. It was a wake-up call for many when Anthropic shut off access to Mythos and Fable this summer, leaving some in the ecosystem to conclude: “We’d better look after ourselves,” Saul Klein, co-founder of the VC firm Phoenix Court, told me.
Phoenix Court is located in the King’s Cross area and has three portfolio companies in the vicinity, including Olix (which just announced a .3 billion valuation), Early Health and CoMind. Robin Klein, co-founder of the firm, said the shutdown of Fable and Mythos access was a “small but sharp reminder that Europe can’t simply rent its AI capabilities and capacity; it needs to build and hold some of its own.” King’s Cross, he said, is where much of this building is actually happening.
“The bigger question,” he continued, “is whether the U.K. builds the infrastructure, compute, energy, capital, to make this self-reliance durable, rather than just hosting outposts of U.S. labs.”
Image Credits:Phoenix Court
Top founders want to stay
Simon Kohl, founder of Latent Labs, has offices in King’s Cross and San Francisco. The London office, at the moment, is growing faster, and he’s more bullish than ever on the ecosystem, he said. “The mood right now feels less like London trying to catch up and more like London becoming one of the default places to start a serious AI company,” he said. Look around and you are likely to see Wayve testing its autonomous cars. Founded in 2017 by co-founder Alex Kendall, the unicorn is one of London’s biggest success stories.
“Ten years ago, building a frontier AI company from London felt like an unusual choice,” Kendall told me. “Now it feels like an obvious one.” Wayve moved into King’s Cross in 2018 looking for a space that could double as a garage — “a rare combination in Central London,” Kendall said. He has watched the ecosystem mature around him — and it’s now evident that a startup can stay in London, raise serious capital, hire world-class AI talent, and remain globally competitive, he said. Down the street from Anthropic’s new 158,000-square-foot office is the AI agent builder Sierra and the AI video platform Synthesia.
Laura Gonzalez Florez, Synthesia’s chief of staff and head of people, says the company moved into its glossy new office building a year ago to accommodate its growing team. They were drawn to the area for the same reason as everyone else: “It’s very close to the airport … very close to where a lot of investors are,” she said.
Image Credits:Synthesia
Around two-thirds of Synthesia’s engineers are remote, Gonzalez Florez said, letting the company tap into an affordable, international, and diverse talent pool and helping it scale faster. “From London, we can hire and work, without any problem, people from anywhere, from Slovenia to Portugal,” she said.
Unsurprisingly, London’s AI boom is also causing a talent war.U.K. AI job postings have skyrocketed in the past few years, per data from PwC. When Anthropic announced it moved into town earlier this year, it listed, for example, a salary range of £260,000 to £630,000 for a machine learning research engineer when the average salary in London for the same role is around £102,000. Some founders in the U.K., like those in Silicon Valley, are being forced to raise more and bigger rounds to keep up.
“The real test is whether more globally significant AI companies are founded, funded, and scaled from the U.K., while continuing to attract the world’s best talent to build them here,” Zain Ali, founder of the King’s Cross-based AI legal firm Centuro, told me. “If that continues to happen, King’s Cross won’t just be an AI hub. It’ll become one of the U.K.’s most important strategic assets.”
When you purchase through links in our articles, we may earn a small commission. This doesn’t affect our editorial independence.#Thisformernotorious #redlight #districtis #nowone #worlds #top #hubs #TechCrunchUK](https://techcrunch.com/wp-content/uploads/2026/08/DM9A2852.jpg?w=680)

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