Investor Roadshows vs. Demo Days: Maximizing Value for Startups
Demo days are to startup accelerators what turkey is to Thanksgiving. People eat turkey on Thanksgiving because it’s a tradition and it tastes pretty good. That said, most people would argue that filet mignon is tastier than turkey. In the same vein, many people in the tech world have demo day fatigue and believe that there must be better alternatives to this industry standard.
We know demos days. Dreamit has been around since 2008 (when Techstars and Y Combinator and our accelerator were the only players in the game). At our demo days, startups have been given an opportunity to pitch to dozens of angel investors and venture capitalists. The goal was always to provide a platform for founders to get the word out about their startups and to meet as many investors as possible.
But are demo days really the most effective way for startups to raise money at the end of an accelerator program? A few years ago, someone on Quora asked Mark Suster why he doesn’t attend demo days. This was Mark’s response:
don’t believe in Demo Days. I think they are a showcase of who is the best at on-stage presentations and who is the best coached & polished. It’s why at Launchpad LA we don’t do Demo Days.
I prefer to come before the Demo Day. I prefer 1-on-1 interaction. I like to get to know the companies, their issues, their struggles, their plans. Demo Day doesn’t tell you any of that.
I’m not saying Demo Days have zero value. They teach companies to present their ideas cogently and in front of a crowd. But mostly they produce too much hype, too little value.
Jordan Cooper, a Special Advisor at Lerer Hippeau Ventures, talked about some of the downsides of demo day in an article on his blog. Specifically, he said, “The accelerator is creating a market for the bottom half of their class by exposing them to weak investors…[and] Demo days create an environment for both entrepreneurs and investors that encourages unthoughtful partnership.”
Suster and Cooper laid out some excellent points for why demo day might not be the best way for a startup to raise funding. Here are some other reasons why accelerators should rethink demo day so they provide the most value to founders.
A few other reasons why accelerators should rethink demo day
According to a search on F6S, there are 893 accelerator programs spread across the world. Many of the 893 startup accelerators that exist can’t be outstanding because only a few tech accelerators consistently stand out from the rest. An accelerator that isn’t outstanding can’t organize an outstanding demo day with the world’s best investors.
This means that many startups spend months preparing for demo day even though they’re meeting less connected and experienced investors at it. It’s a big problem for founders to spend tons of precious time getting ready to pitch investors who can’t provide the best advice or the most add-on value.
In his book Startup Sacrilege for the Underdog Entrepreneur, Paul Orlandolays out many points that explain why demo days are often ineffective but persist nonetheless. He also gives some alternative ways to achieve the same goals.
- Some claim that demo days increase morale levels at startups going through an accelerator. There are definitely cheaper ways to attain raise moral. Orlando suggests throwing a party or end-of-program celebration for the companies in your accelerator as an alternative.
- Most demo days don’t end with startups getting funding. Founders often present their products in front of large crowds while a crowded room of low-level associates from venture firms either pay attention or pay closer attention to their Twitter feeds. Demo day can lead to quality meetings, but it is at its heart a passive event for most investors. Demo days are often followed by a short fair in which investors can meet founders, but most of these meetings are very short and superficial.
- Demo days help founders become better presenters. This is probably true, but is this a valuable use of a founder’s time? Accelerators tend to spend an inordinate amount of time prepping startups for the demo day. Instead of prepping for demo day, founders should be building their product, finding product-market fit, and acquiring customers. In the end, if you are great at presenting a mediocre product, what have you really achieved?
- Demo days are a good way for accelerator programs to get publicity and increase clout, some claim. Accelerators can get publicity with or without demo days. With a proliferation of industry specific blogs, there are more ways than ever to get attention for accelerators and the startups in them. Find the story and make a relationship with a journalist. This will lead to both a better quality, more in depth startup profile, and it will spare reporters and bloggers from having to attend another demo day.
- Almost every startup accelerator has their portfolio startups do a demo day, but that doesn’t mean demo days are the most effective way for accelerator companies to raise money. Demo days tend to work for the top accelerator programs like Y Combinator and TechStars because these accelerators consistently recruit extremely high quality startups. However, investors consistently express fatigue at the sheer number of demo days.
Improving the way accelerator startups raise funding: enter the investor roadshow
With these considerations in mind, the team at Dreamit decided to rethink our approach to ‘demo days.’ We created a two-week program called the Investor Roadshow at the end of our 14-week cycle. 6 weeks before the Investor Roadshow, startups look through our investor database to select the ones they'd like to meet. If they would like to add investors who aren't in our database to their wishlist, the Dreamit team will reach out them too. In the end, the typical startup in our program will have 15 - 30, face-to-face, 20-minute meetings with VC investors who selected that particular company, in the investors' offices.
You give reamit a wish list of investors that you want to pitch. Then, our managing directors and operators set up pitch meetings with as many of those investors as possible.
Then, Dreamit’s managing directors and operators set up 20-minute to 1-hour pitch meetings with as many investors on your wish list as possible. Over the course of the two-week roadshow, you can expect to have at least 15 to 30 in-depth meetings with venture capitalists and angel investors.
Several weeks before the roadshow, Dreamit managing directors teach you the ins and outs of fundraising, how to create the perfect pitch deck, how to answer the difficult questions that investors are likely to ask, and more. If you have questions about how to improve your pitch deck or prep for investor meetings, you have a dedicated team to help.
The week before the investor roadshow is dedicated to intense pitch prep. You have an opportunity to practice your pitch in front of managing directors, executives, and members of our investor network. In these pitch prep meetings, our team will help you perfect your pitch by providing feedback and asking you all of the questions that investors might have.
Dreamit provides you with intense pitch prep before you go on the roadshow.
By the time you start the investor roadshow, you’ll be prepared to impress VC’s and raise funding. On the actual roadshow, you’ll have several long meetings with investors every day. Very few, if any, of the investors you meet with on the roadshow will commit to funding your company during that first meeting. In fact, it’ll probably take another two to three months to actually close your round.
This bespoke alternative to the demo day is similar to how private companies operate pre-IPO. They embark on an investor roadshow to convince institutional investors to commit to buying their stock. For big private companies, this is an extremely effective way to ensure that their IPO’s are successful.
At Dreamit, we’ve found that investor roadshows are great at helping small startups raise funding too. In fact, Dreamit is the first tech accelerator to have its portfolio companies go on an investor roadshow. Our companies have and will continue to benefit from having an investor roadshow at the end of the accelerator.
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By Jack Kaufman (@kaufman_jack)
