This Controversial Fundraising Hack Is Booming—but It Might Not Be Smart for Your Startup

A new report found that some AI startups are using a multitiered fundraising maneuver to inflate their valuations. Here’s how it works.

BY BEN SHERRY, STAFF REPORTER @BENLUCASSHERRY

Founders desperate to separate their AI-powered startups from the pack are turning to increasingly creative solutions, and according to a new report from The Wall Street Journal, it’s changing how startups and investors are structuring fundraising deals. 

The Journal reported that AI companies are increasingly using a back-to-back or multi-tiered fundraising tactic, in which a company sells shares to a prestigious lead investor at one valuation, and then turns around and sells shares to other investors at a much higher price. 

This tactic has a few benefits: The startup gets to boast........

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