Startups

Why this investor is ditching Demo Days

Comment

Image Credits: Treethidtaphat/EyeEm (opens in a new window)

Ross Baird

Contributor

Ross Baird is the founder and executive director of Village Capital.

More posts from Ross Baird

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.

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.

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.

More TechCrunch

Meta’s Oversight Board has now extended its scope to include the company’s newest platform, Instagram Threads. Designed as an independent appeals board that hears cases and then makes precedent-setting content…

Meta’s Oversight Board takes its first Threads case

The company says it’s refocusing and prioritizing fewer initiatives that will have the biggest impact on customers and add value to the business.

SeekOut, a recruiting startup last valued at $1.2 billion, lays off 30% of its workforce

The U.K.’s self-proclaimed “world-leading” regulations for self-driving cars are now official, after the Automated Vehicles (AV) Act received royal assent — the final rubber stamp any legislation must go through…

UK’s autonomous vehicle legislation becomes law, paving the way for first driverless cars by 2026

ChatGPT, OpenAI’s text-generating AI chatbot, has taken the world by storm. What started as a tool to hyper-charge productivity through writing essays and code with short text prompts has evolved…

ChatGPT: Everything you need to know about the AI-powered chatbot

SoLo Funds CEO Travis Holoway: “Regulators seem driven by press releases when they should be motivated by true consumer protection and empowering equitable solutions.”

Fintech lender SoLo Funds is being sued again by the government over its lending practices

Hard tech startups generate a lot of buzz, but there’s a growing cohort of companies building digital tools squarely focused on making hard tech development faster, more efficient and —…

Rollup wants to be the hardware engineer’s workhorse

TechCrunch Disrupt 2024 is not just about groundbreaking innovations, insightful panels, and visionary speakers — it’s also about listening to YOU, the audience, and what you feel is top of…

Disrupt Audience Choice vote closes Friday

Google says the new SDK would help Google expand on its core mission of connecting the right audience to the right content at the right time.

Google is launching a new Android feature to drive users back into their installed apps

Jolla has taken the official wraps off the first version of its personal server-based AI assistant in the making. The reborn startup is building a privacy-focused AI device — aka…

Jolla debuts privacy-focused AI hardware

OpenAI is removing one of the voices used by ChatGPT after users found that it sounded similar to Scarlett Johansson, the company announced on Monday. The voice, called Sky, is…

OpenAI to remove ChatGPT’s Scarlett Johansson-like voice

The ChatGPT mobile app’s net revenue first jumped 22% on the day of the GPT-4o launch and continued to grow in the following days.

ChatGPT’s mobile app revenue saw its biggest spike yet following GPT-4o launch

Dating app maker Bumble has acquired Geneva, an online platform built around forming real-world groups and clubs. The company said that the deal is designed to help it expand its…

Bumble buys community building app Geneva to expand further into friendships

CyberArk — one of the army of larger security companies founded out of Israel — is acquiring Venafi, a specialist in machine identity, for $1.54 billion. 

CyberArk snaps up Venafi for $1.54B to ramp up in machine-to-machine security

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

1 day ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine