When headline valuations aren’t what they seem

Chloe Ladwig/PitchBook

Startup valuations in news headlines don’t always match the price every VC paid behind the scenes.

While letting investors in the same funding round at different valuations isn’t a new invention, the AI boom has enabled some founders to play favorites in this way. And VCs tell PitchBook they’re seeing an uptick in this practice lately, often to reward early believers in a startup, funding round leads, or top investors.

“For investors who committed early, despite the risk, and committed to providing real value to the founders beyond cash—rather than piggybacking on others’ convictions—a tranche round creates value and meritocracy in the AI era,” said Josh Constine, a venture partner at SignalFire. “The best founders have abundant access to competing capital, giving them more leverage to define the valuations than when the capital was scarce, and there wasn’t a massive technology shift opening up huge opportunities that investors are looking for.”

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The practice hit the online VC discourse earlier this month when Mercor co-founder Brendan Foody accused Sequoia of using two-tranche rounds to inflate headline valuations. Sequoia partner Shaun Maguire responded that the firm splits its check only when rivals will pay more than it will for a hot deal.

Recent venture rounds with such structures include vibe-coder Lovable‘s Series A last July, and AI-native IT startup Serval‘s Series B round in December, according to PitchBook data. Serval’s December round, led by Sequoia at a $1 billion valuation, combined two classes of preferred shares priced at different valuations in the same deal. The Wall Street Journal reported that Sequoia’s lowest Serval entry valued the company at less than $400 million, under half the headline figure.

Representatives for the startups did not return requests for comment.

That said, VCs squeezing into the round and paying a premium for that privilege is risky, said Kyle Stanford, PitchBook’s director of US venture capital research. AI startups raised $255.5 billion globally in the first quarter of 2026, surpassing the full-year 2025 total in a single quarter, according to PitchBook’s Q1 2026 AI VC Trends report. With demand running that hot, paying up for access can be the only way onto a coveted cap table.

Some VCs taking the higher valuation are happy to be included in a round that otherwise may have been closed off to them.

“It’s definitely been a theme that we’ve seen,” said Mike Paulus, founder and CEO of PCM Encore. “There’s always been a value to having a Sequoia or a Benchmark as the lead investor, both in terms of the name and the signaling. [Investors] rolling up their sleeves has always meant a lot, and in a way, everyone else got to come in the round—just not on identical terms, while doing a lot less work and arguably adding a lot less value.”

Lead VCs are taking upward of two-thirds of rounds, according to new Carta data. There’s “a growing awareness” among top VCs leading rounds to push for better terms in return for the greater risk they’re taking via high-conviction bets on larger check sizes, said Ashley Neville, Carta’s director of insights.

“Rounds are being so oversubscribed that founders are able to come to the table and say, ‘We are selling more of the company for more money,’” Neville said. “VCs are just so eager to get on the cap table.”

Still, founders do have to navigate delicate relationships when forcing some VCs into worse economics on their investments. This is a large part of the reason why tranched rounds have historically been a rare occurrence. The practice was nearly impossible in venture capital’s last bear market, when VCs had the upper hand and many startups took whatever they could get.

“If I was raising capital, I would have a really hard time letting two different people invest, at the same time, at different valuations,” Paulus said. “It’s kind of head-exploding. And that’s probably the reason why it’s still relatively rare.”

SignalFire has landed preferred equity terms as a lead investor in some startups it has worked closely with on tech buildouts and also hiring, Constine said—though he declined to share specifics.

“It certainly can affect relationships with new investors,” he said. “You want to start off that partnership with every side feeling good and all-in on supporting the company. If an investor is so sour about somebody else’s valuation, and they don’t feel like they’re excited about supporting the company, then they probably don’t make sense as a lead.”

This article originally appeared on PitchBook News