Demo Day+72: How S26 Term Sheets Get Priced

MilesPicture it. September 10th, the lights go down on the S26 batch, and every founder up there is running on adrenaline and no sleep.

GrantAnd then the applause stops.

MilesRight. And their phone starts buzzing before they're even off stage.

GrantThat's the part nobody talks about.

MilesSeriously, nobody preps you for that split second.

GrantThe clapping's still going, and they're already checking their phone under the podium.

MilesI'm Miles.

GrantI'm Grant, and this is the show where we follow one hard call a startup has to make, except this hour, we're zooming out to the whole batch.

MilesBecause what happens in the 72 hours after Demo Day is really not about the pitch anymore.

GrantIt's about who picks up the phone first.

MilesInvestors watching the room, texting each other, trying to figure out which companies are about to get hot.

GrantAnd founders sitting there with a term sheet in one tab and a spreadsheet of comps in the other, trying not to panic.

MilesWe're not chasing one founder's story today.

GrantNo name deal, no single company. We're looking at the mechanics across the batch generally, how this window actually works this cycle.

MilesBecause the pitch gets the applause, but the real negotiation happens in group chats and inboxes nobody sees.

GrantSome of these term sheets come with clocks attached, literally expire in days.

MilesWhich raises the question, is that urgency real, or is it a tactic?

GrantWe'll get into that.

MilesFor now, just sit with the image. Stage lights fading and forty-some founders staring at their phones lighting up all at once.

GrantThat's where we're picking up.

MilesStage ends, the real thing starts. Okay, so September 10th, that's the actual date this year. The S26 batch walks the stage in San Francisco.

GrantRight. And it's not some open house. Dealrooms right up on the event puts the room at about fifteen hundred people, investors and media, invite only.

MilesFifteen hundred sets of eyes on maybe eighty companies, ninety seconds each.

GrantNinety seconds to make fifteen hundred people remember your name.

MilesAnd then what? They just go home?

GrantThat's the part everybody gets wrong. There's a piece on YC Insight that walks through how the day actually works, and it says flat out, "Most of the meetings that matter don't happen on that stage at all."

MilesThey happen after.

GrantThey happen in the seventy-two hours after.

MilesI believe that completely because I remember watching guys nail their pitch, get a huge laugh at the right beat, and then just nothing. No follow-up.

GrantWhile some founder who stumbled over a sentence gets four term sheets by Friday.

MilesBecause the stumble didn't matter. What mattered is what happened in the room after he stepped off.

GrantThe pitch is basically a trailer. It gets you the meeting. It doesn't get you the check.

MilesRight. And fifteen hundred investors can't do real diligence in ninety seconds anyway.

GrantNo chance.

MilesSo they're not deciding anything up there. They're triaging. Who do I email tonight?

GrantAnd that's the window YC Insight is describing. It's not a courtesy period. It's where the actual negotiation starts.

MilesWhich, if you think about it, kind of resolves the thing we opened on.

GrantThe stage moment isn't the moment.

MilesIt's the qualifying round.

GrantI like that. Qualifying round.

MilesYou win the qualifier by being memorable for ninety seconds. You win the actual round in the days after when nobody's watching.

GrantAnd here's the thing that gets me. Founders spend months rehearsing that Ninety seconds. Slide decks, timing, the joke at the end.

MilesSure.

GrantBut almost nobody rehearses for what happens Wednesday night when three emails land at once.

MilesBecause you can't really rehearse that. It's not a script. It's a negotiation happening in real time on your phone.

GrantWith people who've done this fifty times against a founder who's done it zero.

MilesRight. That's the mismatch.

GrantAnd it's not like they can call a friend who's done this before because none of their friends have.

MilesRight. Everybody in that batch is going through it for the first time all at once.

GrantSo what do they actually see land first? Because it's not a Term Sheet with a bow on it.

MilesNo.

GrantIt's a clock.

MilesYeah. Before the terms even matter, there's a deadline attached to them.

GrantA literal countdown sitting in the subject line half the time.

MilesWhich changes the entire calculus for a twenty-three-year-old who just walked off a stage for the first time. So the email lands, and it's not just an offer. There's a deadline stapled to it.

GrantExplode by Friday or the terms are dead.

MilesExactly. TechCrunch actually did a piece on this exact move, called it the nasty exploding term sheet.

GrantNasty is the right word.

MilesThe argument is investors use the clock to keep a founder from shopping the offer around. Sign now, don't call the guy down the street.

GrantWhich, if you're an investor, is just good defense.

MilesSure. But if you're the founder, three days out of a batch, it's a gun to the head.

GrantWait, what does YC actually say about this? They're the ones setting the clock in the first place.

MilesIn that same reporting, YC's own position is that they ask their companies to decide same day but not to box anyone out.

GrantRight. Their reasoning is the founder already has everything they need to decide.

MilesFull information, multiple term sheets, comparable terms, a partner you trust. YC says the deadline isn't leverage, it's efficiency.

GrantI buy that for YC specifically, and it's on the Demo Day FAQ itself. The same-day ask framed as standard practice, not a trick.

MilesRight.

GrantBut that's YC. What about every random seed fund emailing at midnight with a forty-eight-hour clock?

MilesDifferent animal. There's no version of you already have full information when you're a solo GP nobody's heard of.

GrantSo the tactic's real. It's just selectively defensible depending on who's holding the pen.

MilesThat's the distinction I'd hold on to going forward. Same mechanic, wildly different intent behind it.

GrantWhich means step one for any founder is just figuring out who's actually on the other end of that email.

MilesExactly. A name you recognize changes the calculus completely.

GrantOkay. For the best companies in the batch, how many of these clocks are actually going off at once?

MilesThere's an investor guide, VC-backed one out, and the top companies can field hundreds of offers inside forty-eight hours.

GrantHundreds. In two days.

MilesHundreds. So if you're that founder, you're not reading one exploding term sheet. You're triaging a stack of them before lunch.

GrantThat's an auction with a timer running on every single lot.

MilesAnd every lot's ticking on a different clock.

GrantImagine trying to read all of that as one person at your kitchen table at midnight.

MilesYou need a spreadsheet just to track which clock expires when.

GrantSo the mechanics track. The pressure's real, the reasoning's mixed depending on who sent it. Fine.

MilesRight.

GrantBut none of that explains why every founder I've talked to this cycle sounds shocked at the actual numbers coming in.

MilesBecause the mechanics are the same as last year. The market underneath them isn't.

GrantMeaning what exactly?

MilesMeaning the caps on these SAFEs aren't behaving like a normal seed cycle. Something's shifted.

GrantOkay, so the clock makes sense on paper, but the pricing on these term sheets, that's the part nobody saw coming this round.

MilesSo walk this cycle with me for a second. YC Insight's own write-up tracks this. Round sizes ballooned in twenty twenty-one, twenty twenty-two, boom, then got crushed in the twenty twenty-three/twenty twenty-four correction.

GrantCrushed how? Give me the shape of it.

MilesFounders raising less at lower caps, taking longer to close. Then twenty twenty-five hits, and AI money floods back in, and suddenly the curve's pointing up again.

GrantSo it's not a straight line up since twenty twenty-one. It's a dip in the middle, and then a snap back.

MilesRight, a real dip. And that matters because it tells you this isn't some steady march. It's cyclical, and we're on the upswing side of it right now.

GrantOkay, but tell me it's not just vibes. Show me a number.

MilesThis is where it gets concrete. Lobster Capital ran the numbers on the batch right before this one, the one that priced back in the spring.

GrantAnd?

MilesThe default round for that batch landed around four million raise on a forty million dollar post-money.

GrantForty million? For a company that maybe has six people and a prototype?

MilesThree years earlier, same stage, same kind of company, two million raised, twenty million post.

GrantThat's not inflation. That's a completely different market deciding what these companies are worth right now.

MilesSame product, same team, practically the same slide deck, just a different year to walk out on that stage.

GrantSo the going rate doubled.

MilesDoubled, and that's the median. That's not even the headline case.

GrantThere's a headline case?

MilesOne company out of that batch closed near two hundred million dollars post-money.

GrantTwo hundred million, on a company that was pre-revenue three months ago.

MilesThat's the outlier, sure, but outliers set the temperature in the room. Every investor calling an S26 founder this week has that number rattling around in their head.

GrantIt's an anchor. Even if your company's nothing like that one, the guy on the phone just watched someone pay two hundred million for a napkin sketch.

MilesExactly, and that changes how they negotiate with you. They're not comparing your cap to twenty twenty-three. They're comparing it to whatever just happened in the room next door.

GrantWhich is the actual reason this cycle feels different from the last correction. It's not just more capital sloshing around. It's capital that watched a cop print two hundred million and decided that's the new floor, not the ceiling.

MilesRight. So you can read a founder's inbox two ways. Either every offer looks generous because the market moved, or every offer looks generous because somebody's chasing the last deal and overpaying for the next one.

GrantProbably both, depending on the investor.

MilesProbably both. But the point is, the froth isn't a feeling this time. You can point to a dollar figure and a date and say that's where the market actually sits.

GrantSo it's not anecdotal anymore. It's trackable, batch over batch.

MilesTrackable, batch over batch. Which brings up the real question. What does that forty million dollar number or the two hundred million outlier actually mean when it shows up as the cap on a founder's own SAFE?

GrantBecause a cap on paper and a cap that actually protects you when the next round prices are two very different things.

MilesThat's exactly where we're headed. So we've been talking about defaults and outliers. There's actually a compilation that puts numbers on the whole spread, pulls from Carta, PitchBook-NVCA, AngelList.

GrantWhat's the range? So for a standard company coming out of Demo Day, roughly fifteen to twenty-five million on the cap.

MilesAnd for the AI companies?

GrantTwenty-five to fifty million, sometimes higher.

MilesDouble the ceiling, just for the label.

GrantMore than double in some cases. That same compilation says AI and ML deals are pulling a two to three times premium over a comparable non-AI company.

MilesSame traction, same revenue, just different tab open in the pitch deck.

GrantBasically. Doesn't matter if the AI is load-bearing or bolted on for the round.

MilesIt feels like it's begging to get punished later.

GrantSure, but nobody pricing the round in week one is thinking about year three.

MilesFair. Now, is that compilation matching what you'd actually see land in an inbox?

GrantThere's an investor guide to the batch that lines up with it pretty closely. Standard post-demo day raise, it says, is a post-money SAFE around twenty million cap.

MilesOkay, so smack in the middle of that fifteen to twenty-five range.

GrantRight. And it says the top companies are raising thirty to fifty million caps, or just skipping the SAFE and going straight to a priced round.

MilesWhich is its own signal, right? A priced round means somebody wants to own a real percentage, not just a claim on a future one.

GrantExactly. Different animal.

MilesSo if I'm a founder and three offers land with wildly different caps, what am I actually looking at?

GrantThink of it the way I'd read a closing price on a car that just crossed the block. The number tells you what the room was willing to pay in that moment. It doesn't tell you what you owe later.

MilesBut with a SAFE, the cap kind of is what you owe later.

GrantThat's the part people skip past. A twenty million cap sitting on the SAFE is fine right up until the next round price is below it or comes in messy, and suddenly that cap is doing math against you.

MilesWalk me through that, though. Say a founder takes a twenty million cap and then the next round price is at fifteen.

GrantThen the SAFE investor converts as if the company was only worth fifteen, not twenty. The founder gave away more of the company than that headline number made it look like.

MilesSo the cap that felt generous in the moment ends up costing the founder equity six months later.

GrantRight. And nobody explains that part in the excitement of getting an offer at all.

MilesWhich is exactly why a founder needs someone reading the fine print for them, not just celebrating the number.

GrantThat's the job of a good lawyer or an experienced advisor in this window, not chasing the highest cap, just understanding what it actually means if the next round doesn't cooperate.

MilesSo a high number from an eager investor isn't just good news.

GrantIt's demand today and delusion math tomorrow. Both things are true on the same term sheet.

MilesWhich means the founder reading these emails needs to separate what a cap says about how hot the round is from what it actually commits them to.

GrantRight. One's a snapshot, the other's a contract.

MilesSo the numbers explain why everyone's got their hair on fire right now.

GrantThey do. What's left is figuring out how you're supposed to read any of this before the first email even shows up.

MilesSo before we wrap, I wanna go backwards for a second, not into the seventy-two hours before them.

GrantBefore the stage lights even come up?

MilesYeah. There's a builder who posted online days before this demo day making an argument that stuck with me.

GrantWhich is?

MilesThat every go-to-market rep watching demo day is already too late. By the time that list goes public, the founder's actual news broke earlier in a group chat, a DM, somewhere nobody outside was looking.

GrantSo the public list is old news by the time it's public.

MilesBasically, the stage isn't the signal, it's the confirmation.

GrantThat tracks with everything we just walked through. The deals are already forming before anyone claps.

MilesRight. And it's not really about YC specifically. It's how any hot deal moves. Word travels through the people already in the room, and the public version lands last.

GrantOkay, give me the other side of that because I found a post from a founder ten days out from their own Demo Day, and the tone is completely different.

MilesWhat's it say?

GrantThey're not talking about lists or investors at all. They're just saying, "We're shipping faster than we ever have. Inbounds picking up. Growth is ahead of what we expected going in."

MilesThat's the anticipation phase, before any term sheet exists.

GrantExactly. And I think that's worth sitting with for a second. That founder's headspace is pure momentum. Ours, the composite one we've been building all episode, is forty-eight hours deep into offers with numbers attached.

MilesThose are two completely different jobs. One's building the story, the other's pricing it.

GrantAnd nobody warns you that second job starts that fast.

MilesNow, you go from shipping features to reading term sheets in the space of a week.

GrantSo if you're an S26 founder right now, what do you actually watch for? Not the cap number itself, we've covered that, the behavior around it.

MilesWhether the deadline moves when you push on it. A firm that's actually done its homework doesn't need forty-eight hours to decide they still want in tomorrow.

GrantAnd if it doesn't move?

MilesThen you've learned something real about how much conviction is actually behind that number.

GrantThat's a cheap test, too. It costs you nothing to ask, and the answer tells you everything about who you're really dealing with.

MilesRight. And it filters out the tourists fast. The ones just chasing heat move on. The ones with real conviction stick around.

GrantWhich is the whole story of this episode, right? The stage gives you attention. The days after give you information about the investors, about your own leverage, and about what your company's actually worth to people writing checks.

MilesAnd that information shows up faster and hits harder than it used to, given where this cycle's sitting.

GrantSo the pitch was never the hard part.

MilesIt never was. The hard part starts right after, in the calls, in the cops, in the clocks nobody outside the batch ever sees.

GrantThat's the scramble in full.

MilesNow, let's close it out. So two things got answered today, Grant. Why the stage empty outs and the real fight is what happens in the seventy-two hours after.

GrantAnd whether those exploding term sheets are shady. They're not. They're just fast, and fast benefits whoever already has the numbers.

MilesRight. And the numbers are the other headline. This cycle's comps are climbing back toward boom territory, not correction territory.

GrantThat's the thing to actually watch this batch, not any single founder story. We didn't chase one deal today.

MilesNo. We walked the whole batch's mechanics. Every S26 company is living some version of the same seventy-two hours.

GrantWhich is worth remembering next time a headline names one huge round and makes it sound like the whole story.

MilesIt's one data point on a much bigger curve.

GrantWhich is honestly the more useful way to watch any hot funding cycle. Look at the curve, not the outlier everyone's tweeting about.

MilesGood advice for founders and us, honestly, next time we're tempted to lead with the biggest number in the room.

GrantExactly. Alright. If you're an S26 founder or really anyone in your first year post-Demo Day, we wanna hear how those calls actually went for you.

MilesEmail us, yearone@heymotto.com. We read every one.

GrantAnd if this show is useful to you, leave us a review. It's the easiest way to get the next founder to find it.

MilesHonestly, the part that stuck with me is how fast the room empties. One minute you're on stage, and forty-eight hours later, you're deciding what your company is worth.

GrantYeah. That's the job now.

MilesThat's it for this one. Talk soon.