A growing number of artificial intelligence startups are selling identical equity stakes at dramatically different prices to separate investor groups, a practice that artificially inflates company valuations and raises questions about transparency in venture capital markets, according to multiple industry reports.
The scheme, documented by TechCrunch and corroborated by venture capital analysts, involves offering the same class of shares to different investors at prices that can vary by 50% or more within the same funding round. The lower-priced shares typically go to strategic investors or insiders, whilst the higher price point establishes the headline valuation used in press releases and regulatory filings.
Mechanics of Dual Pricing
The practice exploits a gap in how startup valuations are calculated and reported. When a company raises capital, its valuation is determined by multiplying the price per share from the most recent transaction by the total number of shares outstanding. By ensuring the final transaction in a round occurs at an elevated price—even if only a small amount of capital changes hands at that level—founders can claim a valuation substantially higher than what most investors actually paid.
Industry sources indicate this approach has become particularly prevalent among AI companies seeking to cross the $1 billion unicorn threshold or maintain momentum in competitive fundraising environments. The artificial inflation allows startups to attract talent with impressive-sounding valuations, secure better terms with enterprise clients who favour well-funded vendors, and generate media coverage that reinforces their market position.
Market Impact and Stakeholder Risks
The consequences of dual-price equity structures extend across the venture ecosystem. Late-stage investors who participate at the higher price point face immediate markdowns if the company’s next funding round or acquisition occurs at a more realistic valuation. Employees granted stock options based on the inflated valuation may discover their equity is worth substantially less than represented.
For venture capital firms, the practice complicates portfolio valuation and creates potential conflicts with limited partners who rely on accurate reporting. Secondary market platforms, where startup shares trade privately, have reported growing discrepancies between official company valuations and the prices at which shares actually transact—in some cases showing gaps exceeding 40%.
The broader market implications are equally concerning. If dual-price equity becomes standard practice, the unicorn designation—already criticised as an arbitrary milestone—loses further meaning as a signal of genuine company value or market traction. This erosion of trust could ultimately increase capital costs for all startups, as investors demand greater due diligence and valuation discounts to compensate for opacity.
Regulatory Gaps and Precedent
Current securities regulations in most jurisdictions do not explicitly prohibit selling the same equity class at different prices within a single round, provided all material terms are disclosed to investors. However, the practice exists in a grey area where disclosure requirements may be technically satisfied whilst the overall picture remains deliberately obscured.
Historical parallels exist in public markets, where dual-class share structures have long generated controversy. Yet those arrangements typically involve different voting rights or economic terms that justify price variations. The AI startup phenomenon involves functionally identical shares priced differently purely for valuation engineering.
What Comes Next
Venture capital industry groups are beginning to discuss standardised valuation reporting that would require disclosure of weighted average prices across all transactions in a funding round, not merely the highest price paid. Several institutional investors have indicated they will demand more detailed cap table information before committing to deals.
The practice’s sustainability depends largely on whether exit markets—public offerings or acquisitions—continue to validate inflated private valuations. Recent technology IPO performance suggests public market investors are increasingly sceptical of venture-stage pricing, potentially creating a reckoning for companies that have relied on dual-price structures.
As artificial intelligence investment reaches unprecedented levels, the dual-price equity trend represents a test of venture capital market integrity. Whether the industry self-corrects or requires regulatory intervention will shape startup financing practices for years to come.
