I watched a celebration video—VC smiles, a tidy press line, a “unicorn” banner—and felt the room tilt. You can taste the excitement: hiring, headlines, the promise of a breakout. Then I looked at the fine print and the numbers didn’t line up.
Serval announced a $1 billion headline valuation only days after a lower-priced Sequoia deal.
That’s the opening curtain described in a Wall Street Journal investigation: Sequoia closed a deal that left Serval at roughly $400 million (€336 million), then a later tranche—or a separate group of buyers—showed a valuation north of $1 billion (€839 million), and the company went public-facing with the higher number. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
I tell you this because the distinction matters: a single, public-splash headline can become the reputation currency for recruiting, sales pitches, and media cycles—even if the lead investor actually paid a much lower price. The video Sequoia and Serval released sells momentum; investors who only read the press see a different balance sheet than those who were in the room. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
How do startups inflate valuations?
They sell slices of equity to different buyers at different prices almost simultaneously. One buyer—often a marquee firm—gets a preferred economic deal; later, other investors buy at a higher headline price. The lead investor can thus report a mark-up on paper while the company collects the PR windfall. That’s what the Journal reports happened with Serval and a handful of other AI companies. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
About 20 deals with this structure have appeared in the last six to twelve months, according to Carta’s data.
That figure matters because it suggests a pattern, not a one-off. If headline valuations are being manufactured repeatedly, the effect ripples: option strike prices rise, employee upside shifts, and rival startups chase the same mirage. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
Chris Douvos of AHOY Capital called the method a way to “anoint a winner and suck all the air out of the room,” which is exactly the air these companies breathe: reputation, hiring leverage, and sales velocity. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
Is this legal?
Yes—attorneys the Journal spoke with say the structures are legal. But legality and market truth are different things: structured tiers change the economics for different investors and can produce headline valuations that obscure the cash-paid reality behind them. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
Imagine your lemonade stand got a Refreshment Capital check for $100 and a librarian’s $20 followed right after.
You needed $500 (€419); Refreshment Capital offers $100 (€84) for 10 percent, valuing you at $1,000 (€839), then the librarian puts $20 (€17) up for 1 percent, valuing you at $2,000 (€1,678). You walk away with $120 (€101) and a higher headline number. I use the example because the mechanics are the same as what the report describes.
Which moment felt like true price discovery—the lead investor’s bargain, the librarian’s optimistic small buy, or the press release that said you’re now worth twice what your lead paid? I think you know the answer. The practice is a stage magician’s smoke-and-mirrors and, when repeated, a fragile house of cards.
What happens to employees, later investors, and the market’s memory?
Higher headline valuations lift option strike prices, which compresses employee upside unless subsequent growth justifies the new marks. They also change how later investors value comparables and sector winners—sometimes for the worse. PitchBook data and people familiar with the rounds show employees selling at the new headline in secondary trades even when earlier checks were far smaller, reshaping individual outcomes. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
Who benefits and who gets squeezed?
Lead investors who get favorable terms and founders who gain the spotlight profit most. Employees and smaller investors can be squeezed: their economics depend on which slice they took and at what strike or price. The public-facing number becomes the signal—and the rest becomes fine print. ([livemint.com](https://www.livemint.com/ai/artificial-intelligence/ai-startup-valuation-ai-venture-capital-deals-11771823913152.html?utm_source=openai))
I converted the dollar math to euros using current market rates—1 USD ≈ €0.8388—to make the gap more tangible, so when you read $1 billion think €839 million. ([midforex.com](https://midforex.com/forex/usd-to-eur-forecast?utm_source=openai))
You can cheer the big headline, or you can ask exactly how that headline was built—who paid, who earned, and what the downstream effects will be—but which of those choices looks smarter when the market’s memory is short and the press loves a narrative?