Silicon Valley leaders including White House AI & Crypto Czar David Sacks and OpenAI Chief Strategy Officer Jason Kwon caused a stir online this week for their comments about groups promoting AI safety. In separate instances, they alleged that certain advocates of AI safety are not as virtuous as they appear, and are either acting in the interest of themselves or billionaire puppet masters behind the scenes.
AI safety groups that spoke with TechCrunch say the allegations from Sacks and OpenAI are Silicon Valley’s latest attempt to intimidate its critics, but certainly not the first. In 2024, some venture capital firms spread rumors that a California AI safety bill, SB 1047, would send startup founders to jail. The Brookings Institution labeled the rumor as one of many “misrepresentations” about the bill, but Governor Gavin Newsom ultimately vetoed it anyway.
Whether or not Sacks and OpenAI intended to intimidate critics, their actions have sufficiently scared several AI safety advocates. Many nonprofit leaders that TechCrunch reached out to in the last week asked to speak on the condition of anonymity to spare their groups from retaliation.
The controversy underscores Silicon Valley’s growing tension between building AI responsibly and building it to be a massive consumer product — a theme my colleagues Kirsten Korosec, Anthony Ha, and I unpack on this week’s Equity podcast. We also dive into a new AI safety law passed in California to regulate chatbots, and OpenAI’s approach to erotica in ChatGPT.
On Tuesday, Sacks wrote a post on X alleging that Anthropic — which has raised concerns over AI’s ability to contribute to unemployment, cyberattacks, and catastrophic harms to society — is simply fearmongering to get laws passed that will benefit itself and drown out smaller startups in paperwork. Anthropic was the only major AI lab to endorse California’s Senate Bill 53 (SB 53), a bill that sets safety reporting requirements for large AI companies, which was signed into law last month.
Sacks was responding to a viral essay from Anthropic co-founder Jack Clark about his fears regarding AI. Clark delivered the essay as a speech at the Curve AI safety conference in Berkeley weeks earlier. Sitting in the audience, it certainly felt like a genuine account of a technologist’s reservations about his products, but Sacks didn’t see it that way.
Sacks said Anthropic is running a “sophisticated regulatory capture strategy,” though it’s worth noting that a truly sophisticated strategy probably wouldn’t involve making an enemy out of the federal government. In a follow up post on X, Sacks noted that Anthropic has positioned “itself consistently as a foe of the Trump administration.”
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Also this week, OpenAI’s chief strategy officer, Jason Kwon, wrote a post on X explaining why the company was sending subpoenas to AI safety nonprofits, such as Encode, a nonprofit that advocates for responsible AI policy. (A subpoena is a legal order demanding documents or testimony.) Kwon said that after Elon Musk sued OpenAI — over concerns that the ChatGPT-maker has veered away from its nonprofit mission — OpenAI found it suspicious how several organizations also raised opposition to its restructuring. Encode filed an amicus brief in support of Musk’s lawsuit, and other nonprofits spoke out publicly against OpenAI’s restructuring.
“This raised transparency questions about who was funding them and whether there was any coordination,” said Kwon.
NBC News reported this week that OpenAI sent broad subpoenas to Encode and six other nonprofits that criticized the company, asking for their communications related to two of OpenAI’s biggest opponents, Musk and Meta CEO Mark Zuckerberg. OpenAI also asked Encode for communications related to its support of SB 53.
One prominent AI safety leader told TechCrunch that there’s a growing split between OpenAI’s government affairs team and its research organization. While OpenAI’s safety researchers frequently publish reports disclosing the risks of AI systems, OpenAI’s policy unit lobbied against SB 53, saying it would rather have uniform rules at the federal level.
OpenAI’s head of mission alignment, Joshua Achiam, spoke out about his company sending subpoenas to nonprofits in a post on X this week.
“At what is possibly a risk to my whole career I will say: this doesn’t seem great,” said Achiam.
Brendan Steinhauser, CEO of the AI safety nonprofit Alliance for Secure AI (which has not been subpoenaed by OpenAI), told TechCrunch that OpenAI seems convinced its critics are part of a Musk-led conspiracy. However, he argues this is not the case, and that much of the AI safety community is quite critical of xAI’s safety practices, or lack thereof.
“On OpenAI’s part, this is meant to silence critics, to intimidate them, and to dissuade other nonprofits from doing the same,” said Steinhauser. “For Sacks, I think he’s concerned that [the AI safety] movement is growing and people want to hold these companies accountable.”
Sriram Krishnan, the White House’s senior policy advisor for AI and a former a16z general partner, chimed in on the conversation this week with a social media post of his own, calling AI safety advocates out of touch. He urged AI safety organizations to talk to “people in the real world using, selling, adopting AI in their homes and organizations.”
A recent Pew study found that roughly half of Americans are more concerned than excited about AI, but it’s unclear what worries them exactly. Another recent study went into more detail and found that American voters care more about job losses and deepfakes than catastrophic risks caused by AI, which the AI safety movement is largely focused on.
Addressing these safety concerns could come at the expense of the AI industry’s rapid growth — a trade-off that worries many in Silicon Valley. With AI investment propping up much of America’s economy, the fear of over-regulation is understandable.
But after years of unregulated AI progress, the AI safety movement appears to be gaining real momentum heading into 2026. Silicon Valley’s attempts to fight back against safety-focused groups may be a sign that they’re working.
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![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 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 million Series B at a 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 0 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 0 million valuation despite an announced 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](https://i2.wp.com/techcrunch.com/wp-content/uploads/2024/11/GettyImages-1258486979.jpg?w=1024&ssl=1 "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 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 million Series B at a 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 0 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 0 million valuation despite an announced 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")
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