AI startups are selling the same equity at two different prices

Every time you think you’ve caught up to the complexities of venture capital equity, founders and investors come together and conspire to concoct convolutions beyond your wildest dreams.

Recently, Aaru and Serval, two AI startups, made the headlines for something entirely unheard of: dual-valuation funding rounds. Aaru has set out to uncover the mechanics of human behavior in the context of customer decisions, constituent reactions to policy decisions, and voting results. In its Series A round, Redpoint, the lead investor, was allowed to make most of its Aaru investment at a valuation of $450 million while also being able to invest more at a valuation of $1 billion, along with other investors.

Serval, on the other hand, is an internal helpdesk automation startup. In its Series B round, Sequoia’s lowest entry point was $400 million; however, the startup reported a valuation of $1 billion for this funding round.

Why are AI startups able to raise funds at 2 different valuations in the same round?

To put it simply, AI startups have no shortage of suitors. They become commercially viable faster than most other startups. Stripe reported that AI startups reach the milestone of $30 million in annualized revenue 5 times faster than SaaS startups of the past. Hence, every investor wants to get on their cap table.

Over the last decade, AI and machine learning’s share of total VC dollars raised in North America has grown from 10.2% to 63.8% in 2025.

As a result, AI founders can negotiate with aplomb, something other founders cannot normally hope to do. However, that only explains the high valuations commanded by AI startups and not the dual-valuation funding rounds.

Despite their potential, AI startups still need someone to open the door to venture capital for them at early-stage rounds. Just because a startup leverages AI does not mean that they have already gained widespread visibility and credibility. In such cases, startups generally need to make peace with being undervalued in the early-stage funding rounds.

However, founders seem to have stumbled upon a workaround. Instead of simply accepting the low valuations, AI startups can onboard a lead investor at a discounted valuation with a tacit understanding or expectation of raising the remaining funds at a higher valuation. This is only possible because of the unrelenting grip AI startups have gained over the VC landscape.

The intended spillover

If you are forced to choose between the products of a unicorn and those of a $100 million startup, with no other information, you would instinctively pick the unicorn, just like most other people in your position.

That instinct or behavioral pattern reveals something important. Valuation is more than a financial metric. It also influences perception.

For AI startups, a higher valuation signals more than deeper pockets. Yes, it unlocks the capital needed to build models on a larger scale. But it also confers a reputational edge. It is a signal of credibility that competitors with lower valuations cannot match. In a highly competitive market, that perception can be just as powerful as the product itself.

Are dual-valuation funding rounds really beneficial for AI startups?

Dual-valuation funding rounds have become a viable route to minimize dilution and secure the desired funding at early stages for AI startups. But there’s a catch. They expose startups to higher-than-normal growth pressure.

In dual valuation rounds, it is in the founders’ interest to ensure that the weighted average valuation is equal to or higher than the startup’s true valuation. Otherwise, founders would experience excessive dilution.

This would mean that one set of investors ends up buying overvalued equity. The startups must achieve extremely high growth to ensure positive returns for such investors.

Let us see how this equation works.

Suppose a startup’s true valuation is $800 million, but it sells a 20% stake to the lead investor at a valuation of $400 million.

Then, to ensure a valuation of $800 million, the remaining 80% equity must be priced at a valuation of:

Required valuation for the remaining equity = (Actual valuation − Lead investor’s investment) ÷ Remaining equity
= ($800 million − $80 million) ÷ 80%
= $720 million ÷ 80%
= $900 million

At this point, the non-lead investors’ entry point will be overvalued by 12.5%. If these investors entered with an IRR of 30% over 4 years in mind, the startup must actually achieve 34% CAGR just to meet expectations. Let’s call this extra 4% CAGR the startup’s additional growth burden.

In such rounds, the startup’s additional growth burden increases with every increase in the lead investor’s stake as well as the valuation discount provided to the lead investor.

How should investors approach dual-valuation funding rounds?

Although dual-valuation rounds are still new, they add another layer of due diligence for non-lead investors. Specifically, in your meetings with lead investors and founders, you will need to find out:

• What is the size of the lead investor’s stake?
• What is the lead investor’s entry valuation?
• How overvalued are your shares compared to the company’s weighted average valuation?
• What is the startup’s additional growth burden?

Eqvista – Unmasking the Investment Pitfalls!

The advent of dual-valuation rounds is a testament to the ever-changing nature of venture capital equity. If you, as an investor, do not diligently monitor your portfolio companies’ ownership structures, your views can easily fall out of touch with reality.

Each funding round can potentially introduce complexities such as multi-class equity structures and complex securities like convertible bonds and warrants.

Eqvista’s cap table software helps you cut through the clutter and gain an objective view of the value of your holdings. Contact us to know more!