Why this investor is ditching Demo Days

I started to realize that Demo Days might be getting stale when an investor at one of our events told me to share the highlights after the pitches were done — he would be out in the hallway with a beer.

Another time, an investor said he wanted to quit his job and build a startup that goes to pitch events on behalf of other startups. “I’d make a killing taking a percentage of the prize money!” he told me. “These things are rigged!”

Think of a startup pitching for funding. What comes to mind? It’s likely the “Demo Day.” A startup stands onstage, going through slides in front of a packed room, with expert judges onstage ready to give feedback. Maybe there’s some prize money. It’s an entrepreneur’s best shot at getting the funding they need — or at least some attention.

Except, as we at Village Capital have learned, Demo Days are not the best way to help most entrepreneurs get the funding they need. And in the long run, they are not helpful for investors, or the broader ecosystem — in fact, they aggravate blind spots that investors already face.

That’s why we made the decision to ditch the Demo Day — and why I encourage others to rethink how they support innovation.

Not to rain on the parade…

The “Demo Day” first became popular in the late-2000s when a nascent group of entrepreneur support organizations, most notably Y Combinator, Techstars and 500 Startups, started to run structured programs with batches of startup companies: “accelerators.”

An accelerator typically works with a fixed number of companies over a fixed period of time, usually around three months. At the very end, the accelerator will usually run a “Demo Day” or “Pitch Day.” They announce an open-to-the-public, or at least open-to-investors, event. They gather key investors in the room and parade entrepreneurs onstage, with each founder pitching their company’s concept with slide decks. Sometimes there is a grand prize for the company selected by a panel of judges.

Nearly every entrepreneur support program I know has adopted this format — including our own.

My firm has run more than 75 “Demo Days” over the last seven years. We’ve held Demo Days in concert halls in southwest Virginia, on college campuses in Miami, in wedding halls in Northern India and in co-working spaces in Accra. We’re usually able to draw a crowd, and most everyone has a great time.

But over time, we’ve learned that Demo Days aren’t actually accomplishing what they’re supposed to: helping entrepreneurs raise money and meet investors. When we surveyed our companies and asked them where they met investors, it was rarely at an actual pitch event. And the format privileges the ones who pitch well, rather than the ones who have the highest potential.

Recognizing the habit of pattern recognition

Investors, facing an onslaught of knowledge, often result to quick heuristics to make decisions. These heuristics can be helpful. From “don’t take candy from strangers” to “big animals = dangerous,” heuristics have helped us as a society for thousands of years.

But as Wharton’s Laura Huang writes, in a “pitch event” format, these heuristics may bias against the best entrepreneurs. In her work, “Who’s the Most Attractive Investment Opportunity of All? Good-looking Men,” she found, for example, that among businesses with similar fundamentals and markets, attractive people got funded more than unattractive people, and men were funded more than women. Overall, less than 10 percent of startup investment goes to women and less than 1 percent goes to people of color. And 78 percent goes to founders from three U.S. states.

The best investments happen because of relationships, not pitches.

Huang found that pitch formats exacerbated this bias: The same business pitched with a man’s voice got considerably more interest than when it was pitched with a woman’s voice.

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. You often have to sit and listen to a bunch of companies that don’t fit your investment thesis in order to hear a few that do. And if you’re caught up in the theater of it, you may not be making the best decisions on who to follow up with after the event.

Moving past pitches

So what can we do instead?

The best investments happen because of relationships, not pitches — in fact, I’ve never seen an investor make an investment decision, ever, as a result of seeing a pitch.

We realized that if we’re going to organize a day-long event with entrepreneurs and investors, and we have limited time and space, we’re better off creating space for investors to build relationships.

We didn’t come to this realization alone. Emory University and the Global Accelerator Learning Initiative conducted an independent evaluation of our acceleration programs over the past seven years, and we learned the single activity that had the best results for entrepreneurs was building one-on-one relationships between entrepreneurs and investors.

If you’re picking who pitches best, not who runs the best business, you’re not getting the best results.

So instead of “Demo Days,” we changed the signature activity at the end of programs to something we call “Investor Forums” in order to provide initial diligence for investors, help startups improve their business and provide an environment for investors and startups to get to know each other.

First, we invite investors to meet with each company in the cohort for 20 minutes and ask initial questions. Next, we host “mock board meetings” with investors and potential strategic partners, in which the entrepreneurs discuss and receive feedback on one strategic challenge. Finally, we host a dinner where the investors and entrepreneurs get to know each other better — a form of “soft” diligence.

This process is better for entrepreneurs, because it flips the power dynamic: Instead of standing onstage, racing through slides and being peppered with hardball questions, the entrepreneur and investor are sitting at the same table, the entrepreneur is leading the meeting and they are talking through the business as equals. And they get to show skills like critical thinking, relationship management and the ability to take and deliver on feedback: all more closely related to success than a slide deck.

It’s better for investors, because instead of sitting in an auditorium, half-bored and half-interested, they can take a deep dive and add value.

Ultimately, we’re seeing this format yield more funds raised for companies: a better outcome for the region.

Improving the odds of success

I’m not saying that entrepreneur support organizations should stop pitch events entirely. We continue to do public events to promote and celebrate startups; entrepreneurship is hard work, and most days are not that fun if you’re the CEO of a startup — having a community around you watching what you do can be fun. But at these events, the entrepreneurs talk for a minute, rather than five or 10, and don’t need to prepare for weeks.

When we’re dealing with our most limited resource — and time is always a limited resource — we see other ways to be helpful to entrepreneurs and investors. Our “mock board” solution is just one idea; I’ve seen other good ones, ranging from investor “office hours” to full-group design sessions.

Overall, if we want to improve the odds of entrepreneur success, we can innovate not just in the products and services we support, but also how we discover, develop and invest in companies. Getting rid of Demo Days is just one way to start.