AI Startups Game the System: Same Equity, Two Prices, Instant Unicorn Status

A growing number of artificial intelligence startups are exploiting a clever accounting loophole to inflate their valuations and claim coveted unicorn status—all while selling identical equity stakes at dramatically different prices to different investors.

The Two-Price Trick

The scheme works like this: AI companies first sell preferred shares to investors at a modest valuation. Then, in a separate but simultaneous transaction, they issue common shares or warrants to employees, advisors, or friendly parties at significantly higher prices—sometimes 10x or more above the institutional investor rate.

When calculating their official valuation, these startups point to the higher-priced transactions as evidence of their worth, despite the fact that the actual investment capital came in at much lower valuations.

“We’re seeing companies claim $1 billion valuations based on a handful of $10,000 transactions at inflated prices, while their real funding came in at $100 million valuations,” says venture capital analyst Sarah Chen at Meridian Partners. “It’s financial engineering disguised as legitimate price discovery.”

Manufacturing Unicorns

This practice has exploded among AI startups desperate to join the unicorn club—private companies valued at $1 billion or more. The unicorn label unlocks media attention, top-tier talent recruitment, and access to later-stage investors who often screen deals based on valuation thresholds.

At least 12 AI companies have employed variations of this strategy in 2024, according to PitchBook data analyzed by venture tracking firms. The companies span sectors from autonomous vehicles to drug discovery, with most clustering around machine learning infrastructure and enterprise AI tools.

The motivation is clear: traditional fundraising has become brutal for AI startups as investors grow skeptical of sky-high valuations without corresponding revenue growth.