2 reasons why demo days are dead

And one way to keep deal flows alive

Startup accelerators are increasingly putting the brakes on demo days. The often flashy events reserved for founders to connect with investors have long been part of the likes of Y Combinator’s program, seen as the “graduation” of startups’ journey.

But demo day isn’t a good use of founders’ or investors’ time.

Many VCs who sign deals with the top startups from YC actually do so before demo day. The commotion around the event means that investors are so eager to seal an early-bird deal, they jump ahead of the queue and undermine the need for the event in the first place.

In an investment landscape that has changed drastically over recent years, the demo day is an outdated tradition. With capital flows surging, founders are more selective about the investors they bring on board — they’re not looking for deep pockets or a fast close; they want mentorship, emotional support and investors’ undivided attention.

What we need is to better understand why demo day falls short and how to source deals on a much more intimate level.

Simply getting rid of demo day won’t help founders find, or let investors offer, that value. A direct alternative (i.e., a differently formatted event) won’t be effective either. What we need is to better understand why demo day falls short and how to source deals on a much more intimate level.

Demo day dilutes investor engagement

Demo days are performative. A founder stands on stage and pitches themselves and their companies in the best light for 30 minutes or so. But having the most impressive pitch or being the most charismatic founder isn’t the same as having a real business solution or an efficiently run company.

An opinion piece on TheNextWeb already claims that VC funds are “just like Ponzi schemes,” because investors too often think along the lines of, “Will this person make me money?” In a demo day setting that’s run on hype, investors are further forced to care more about companies’ growth potential and later funding stages than their actual mission. The emphasis on showmanship and the concept of betting on people turns investment into gambling.

And yet, at the same time, investors are fatigued by the high energy of demo days. One investor remembers a colleague asking him to share the highlights after the demo day pitches were done so he could hang out in the hallway with a beer. A drop in the ocean of disengaged, uninspired investors who aren’t committing to companies out of genuine intrigue, merely complying with the time-old template of fundraising.

Investors are encouraged to judge books by their cover

Demo days are supposed to give founders a level playing field and offer investors a representative spread of cohorts. But what really happens is that investors judge founders based on their charisma and storytelling abilities. An inarticulate or shy founder shouldn’t be written off based on their presentation, but investors naturally gravitate toward the “hype man” type.

Of greater concern though, is the fact that demo days can perpetuate biases. Investors have long opted for founders who look, sound and think like them. In fact, research shows that among startups with a similar framework, “attractive” founders get funded more than “unattractive” people, men more than women, and less than 1% of investment goes to POC founders.

Demo days are problematic because founders can’t work against confirmation bias when they’re only given a limited time slot in a long list of founders. And because founders are pressured to have everything ready in the company (including themselves) by demo day, investors have a tendency to be extra critical.

Time to reconfigure demo day as 1:1 meets

We’ve realized that a single good elevator pitch is worth 50 times more than having a seat at a demo day. The trick is to curate natural, comfortable conditions, where there’s no power dynamic and both our team and founders can be their authentic selves, not part of the meat market of demo days.

At my investment firm, we focus on creating intimacy with founders. We take them out for dinner, we discuss life, family and planned vacations. We share an activity while talking about the business — playing basketball, golf or walking with a coffee. We host fireside chats where we invite founders one at a time to speak and form meaningful connections with us. We know that we can’t meet as many founders this way, but we’d rather have one deep exchange than 20 superficial ones.

During our talks, we don’t just focus on the founder. We ask about the founding team, where they’re from, what their backgrounds are and what drew them to the startup. We show founders that we’re curious and that we know the company doesn’t start and end with them.

Another strategy we’ve adopted is to decelerate our active deal flow search. We don’t use scouts or hunt for new opportunities at every turn; we let founders come to us as warm referrals from trusted sources in our ecosystem. And because these startups have been pre-vetted by a shared contact, we already know that they align with our mission, and we with theirs, and that we’re not wasting one another’s time.

Demo days have been dead for longer than we investors probably care to admit. However, with value now directing dollars far more than convenience, VCs have to wake up to the power of getting to know, and backing, founders on a 1:1 basis.

RIP demo days, long live people-driven deal flows.