economy
Mercor’s Brendan Foody calls out Sequoia, accusing it of 'dual-pricing' valuation tricks
Sequoia is just one of the top firms that sells same equity at two different prices.
TL;DR
- Founders and founders-turned-investors are sharing negative experiences with VCs, citing mistreatment and misleading practices.
- Brendan Foody accused Sequoia of a 'sequoia scam' involving dual-tranche investments at different valuations, masking the true entry price.
- This dual-pricing mechanism involves a lead VC investing a large portion at a lower valuation and a smaller portion at a higher, announced valuation.
- Sequoia's Shaun Maguire pushed back, calling the practice unfair and explaining it as a way to structure deals when other investors are willing to pay higher multiples for hot companies.
- While dual-pricing inflates perceived worth, employee stock options are theoretically priced based on a blended value, and 409A appraisals aim to reflect fair market value.
- Angel investors, unlike employees, lack an independent appraiser and may be more directly affected by founders sharing only the headline valuation.
- Another tactic mentioned is the manipulation or overstatement of annual recurring revenue (ARR).