AI Frenzy Brings Dual Valuation Deals into the Mainstream

Prestige venture firms are increasingly securing better prices than other investors in the same funding round through dual valuation deals, a practice that has become pervasive in the current AI-driven funding frenzy. Starcloud, a space data center startup, raised $170 million at a $1.1 billion valuation in March, but the first tranche, led solely by Benchmark, closed at a $250 million valuation, with the second tranche closing at more than four times that price days later. Weston Moyer, managing partner at MVP Ventures, estimates about 25% of recent deals feature dual valuations, and Brendan Foody, CEO of AI-training startup Mercor, called the tactic 'deceptive' on X, while Sequoia partner Shaun Maguire claimed it was rare.

AI Frenzy Brings Dual Valuation Deals into the Mainstream Prestige firms are monetizing their brand names by getting better prices than others in the same funding round When Starcloud, a space data center startup, announced in March that it had raised $170 million at a $1.1 billion valuation led by Benchmark and EQT, you had to read deeply into the press release https://www.businesswire.com/news/home/20260330024111/en/CORRECTING-and-REPLACING-Starcloud-Raises-%24170M-Series-A-at-%241.1bn-Valuation-Led-by-Benchmark-and-EQT-Ventures to learn that the deal was done in two tranches, with the first part led solely by Benchmark. What it didn’t say: that first piece came at a valuation of $250 million, according to two sources familiar with the deal. Just days later, the second tranche, which also included a host of smaller investors, closed at more than four times the price. The Starcloud deal is an example of what investors say is becoming a common practice: prestige firms getting a significantly better price than other investors in what is essentially the same round. Proponents of such deals say they’re simply reflecting the market reality that some investor dollars are greener than others and it’s only logical for firms to cash in on that — especially in early-stage deals where an investor’s brand name can make a huge difference. But critics say such structures can be problematic, not least for employees. Brendan Foody , CEO of the AI-training startup Mercor, stirred the pot https://x.com/BrendanFoody/status/2063470286515683759 on the issue on X last month, writing: “in the last 6 mo’s ive seen a half dozen rounds where sequoia invests in 2 tranches. everyone pretends they only did the higher valuation,” and calling the tactic “deceptive.” Sequoia partner Shaun Maguire , in a reply, claimed the practice was rare. But Newcomer’s reporting suggests it’s increasingly common across the industry. Weston Moyer , managing partner at MVP Ventures, an investor in defense tech firm Anduril and voice AI startup Wispr Flow, says about 25% of all deals he’s seen in recent months have featured dual valuations for essentially a single funding round. That estimate was echoed in interviews with six other early-stage VCs, who said the mechanism has gone from rare to pervasive in the current frenzied funding cycle.