Have done demo day twice, and I can confirm. It was way, way worse the second time around. Lots of companies had filled out their rounds by demo day, despite the official YC advice (i.e. "don't fundraise until demo day").
Also, it's not a subtle effect at all, particularly now that demo day is split up into batches with similar companies grouped together. If you're presenting on the same day as some company close to your space that has raised millions, it looks bad. Investors routinely ask who else has invested in your company. If company X has a long list of name investors and you don't, investors want to put their money in company X. It's a downside of the dynamics of the feeding frenzy created by demo day -- investors have little to go on, so they make a big deal out of herd signaling.
Obviously, this doesn't matter for the hottest deals, but most companies in a batch aren't hot deals, and the hot deals don't need demo day in the first place.
The goal of a Demo Day presentation is not to convince the audience to invest. It's just to convince them to follow up with you. It's at that second stage where the demos happen-- as they were in fact happening all over the building during the breaks between sessions.
At events like TC Disrupt, where startups demo in booths,
few (perhaps no) investors ask for demos from all of them. The startups have posters and investors decide based on those which to approach and talk to further. In effect YC Demo Day presentations are those posters.
I think for someone that has gone through a startup program most that is written in the article are obvious truths. Yes, there might be a lucky few who benefit from a demo day, because that's one of the few chances where you might get the attention of investors that might usually not be that easy to reach. However most people will meet their investors during the program via some connections.
To me, demo days feel like they are mostly PR events for the accelerator. It is a very easy way for an accelerator to get people to notice it, since it is one of the few events an accelerator is usually hosting, where they have significant presence and they can attract a lot of reports with the startups. Apart from that, it is very hard, especially for smaller accelerators, to even be mentioned in an article of one of the startups they funded.
I can barely read a list of 60 new start-ups without melting my mind. The names and value props turn into soup after about 20. I can't imagine being there, making decisions about all 60 and then coming back repeating for a second day!
I was prepared to skeptical--investors of course will dislike situations which set up competitive bidding scenarios.
But the writer has some good points, including demo days favor men more than women, as well as extroverts:
For entrepreneurs who don’t pitch well — or who don’t fit investors’ mental image of a successful entrepreneur — Demo Days may hurt more than they help. The preparation teaches entrepreneurs to focus on transactions more than relationships (when, in reality, an in-depth conversation after the pitch matters a lot more than the pitch itself).
The Demo Day format is not ideal for investors, either. If you’re picking who pitches best, not who runs the best business, you’re not getting the best results.
What I have seen happening at accelerators, universities, and startup events in the Boston area is this intense focus on pitching. It's all about showing off the team, presenting a problem, sharing market or usage stats, prepping a slick video, and getting the deck just right. This approach emphasizes superficial qualities over the product or service being built. Product demos are almost an afterthought, and information about build progress or actual discussions with customers are turned into a couple of bullets on slides 4 and 5.
So yeah, by all means, ditch the demo days. But don't assume that focusing on "building relationships" will solve the problems of investors favoring certain types of people, or glossing over product and customer discussions. Extroverted founders and talented salespeople can project empathy, ask the right questions, and send other signals that are more likely to suggest a "good relationship" to investors. These qualities/skills will not determine who runs the best business.
It's also invaluable to be able to stand in front of a group of people (whether VCs, the press, other startups) and be able to clearly communicate what your startup does.
Viewing Demo Day as a tool that's only useful if you're fundraising on the back of it is incredibly shortsighted.
I think a big part of why Demo Day is run like this is because good products do not speak for themselves.
Investors are often not the target demographic of a particular product and given the range of products (wedding registry app, logistics/shipping software, developer tool for checking insurance claims, humor website, etc) most YC companies have chosen to show traction as a proxy for both demand for and quality of, their product as well as the execution ability of the team.
As others have pointed out, this is a great way to get an investor interested in learning more about the company.
I'm curious: if most of these companies go on to raise rounds by going through the proper channels, why bother focusing on the pitch and not just the demo? It seems to me that if these companies still have to pitch to individual investors anyway, why not use the current iteration of Demo Day as their "Elevator Pitch" deck to investors, and use Demo Day as a real day of demonstrations, the "sneak preview" of things to come to wet the mouths of investors before they hear the real pitch?
Hey I replied to you above. I am not 100% sure how this will play out wrt demo day. I was convinced in August by Alex and Rosanna to delay presenting until the next demo day, obviously because they knew something I didn't. This was offered by YC as an option for the first time, I believe due to the volume of companies in the batch.
So maybe solution is in changing optics for such events - Demo Days are primary for PR stage play helping humanizing startups and their creators and not for helping entrepreneurs raise money and meet investors?
Isnt the story saying that the demo day itself is becoming less important, and deals are being signed before or outside of it? I didn't take it as disparaging YC, just that the "reveal" aspect of demo day has given way to a making deals on a one-on-one basis
* batch size
* remote participation
* international companies
* YC's size and # of partners (vs a few principals)
so to say demo day has lost it's impact is a big stretch (not that the story even really says this). There are too many variables.
The real story is that being part of something exclusive and successful is viewed as more valuable than something much larger and but no more successful. No kidding.
I think the point in the article about it being less useful if you already have a decent network is huge. What we saw in VC is that warm intros are so much more productive than even YC Demo Day leads (which are in turn slightly better than intros through requests).
If you can line up a large number of them (through having worked in the Bay Area a lot, through your past employers), then you have a huge leg up that makes Demo Day less useful
Demo day was never about first look or press. It has always been about investors.
It is unlike TC50 and DEMO in that respect. Though it does give some marginal press.
Edit: I half think press should be banned from the event. I always found it annoying giving details that only investors should hear with press present.
I would imagine because if you don't have a product completed before Demo Day (even a completed prototype that works, of sorts) there is no value to show potential investors.
I attended every demo day session (and the practice sessions before demo day) for about 2 years* and the real difference between the audiences depended on time of day. I think a "good" presentation had a lot of people writing things down, vs BlackBerry / iPhone reading.
Also, back when there were more sessions and they happened at YC HQ, the time of day played a big difference. The later sessions (I think they started at 4?) had people actually laughing at jokes, whereas the earlier sessions some of the exact same jokes, seemingly delivered the exact same way missed really badly. (I remember people actually cheering for Hipmunk's presentation. It felt like a home run.)
I don't know what it meant for follow up, but two notable presentations at least generated some memorable notes that I spied over people's shoulders. Jason Shen from Ridejoy did a cartwheel on the way in (he's a former collegiate gymnast) and I saw a lot of people drawing stick figures cartwheeling. Also, during SiftScience's presentation, one of the founders punctuated his presentation by saying something to the effect of "We're going to stop people from fucking with our customers." A lot of people wrote down "fuck" next to their name :)
I don't know what happened to most of the companies post demo day with their applicable raises.
*: I did behind the scenes work with YC as the audio / video guy for a bit, before they went to the CH museum.
Prototype Day is a chance to practice your pitch in front of your peers. For most people, it's also the first chance to see what impacts an audience, especially after they've just sat through 20 presentations. (This is helpful both for pitching investors in general, and for demo day specifically.)
You can replicate a lot of the value by getting a group of serious founders together and having them spend a day or half a day pitching to each other, with feedback. If you can get a mentor experienced with the process to give you feedback, even better.
Seems like Demo Day is the reason to come back. From second hand experience it seems raising funds is nightmare fuel. Demo Day essentially solves that problem.
Also, it's not a subtle effect at all, particularly now that demo day is split up into batches with similar companies grouped together. If you're presenting on the same day as some company close to your space that has raised millions, it looks bad. Investors routinely ask who else has invested in your company. If company X has a long list of name investors and you don't, investors want to put their money in company X. It's a downside of the dynamics of the feeding frenzy created by demo day -- investors have little to go on, so they make a big deal out of herd signaling.
Obviously, this doesn't matter for the hottest deals, but most companies in a batch aren't hot deals, and the hot deals don't need demo day in the first place.
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