Techstars describes a demo day as “an opportunity for startups to sell their story to investors and potential partners, with the aim of raising money or gaining traction through partnerships and relationships”.
Hosted at the end of an accelerator programme, a demo day is a formal reveal of an accelerator’s talent.
Startups showcase their ideas and investors scout new deals. The day can help to increase exposure, expand networks, facilitate connections with potential partners and unlock additional resources.
Opportunities for founders
Demo days are adrenalised events characterised by high pressure and exhausting conversations that can — and do — change the startup’s fortunes. “They can be nerve-wracking,” says Sechaba Mofokeng, the entrepreneur behind OneMoola, a financial goal-tracking application. The OneMoola team are alumni of the MTN Solution Space Venture Incubation Programme. Their successful demo day presentation led to partnership talks with a leading institution to provide regulatory backing for the application.
But clarity is crucial. To make the most of the opportunity, startups must know what they want to achieve from the day. “We were very clear about what we were looking for in a partner. The financial services industry is highly regulated, so we were focused on finding a partner with the right regulatory profile. Although we started discussions beforehand, the day itself gives you an opportunity to show what you’ve learned, and to engage with the right partners,” says Mofokeng.
Time is as valuable as money
Clarity on the day is not only important for startups. The accelerator also needs to understand the context within which the startups are operating, which helps to facilitate the right relationships with investors. Brett Commaille, Lead Partner at AngelHub Ventures, expands on this principle from the investor’s perspective: “Our most precious resource is time. We give it gladly in support of startups. But on the demo day, we want to walk into the room and meet startups who know what they’re looking for, who are well-prepared and structured for investment. We don’t want to hunt for clues. The accelerator needs to facilitate the introductions based on what they know we are looking for. If the accelerator does not add this value, investors will be wary about its credibility.”
Preparation for the demo day begins from the day the startup enters the accelerator programme. Investors walk part of the journey with the startup, providing mentorship and advice throughout the programme, so the idea presented on demo day will not be new to them. However, the investor is looking for indications of growth and development. Matthew Palin, part of the investment team at AngelHub and a judge in the 2016 Venture Incubation Programme, reinforces the point: “If the pitch hasn’t changed since the startup entered the accelerator, that indicates the founders haven’t taken on board anything they have learned through the process.” This is a red flag to the investor.
Being in the right place at the right time
Aligned with this is the importance of managing expectations. Commaille explains: “It seldom happens that the entrepreneur walks out of a demo day with money in their pocket, so the accelerator still has a critical role to play after the programme has ended.” The accelerator allows entrepreneurs to spend focused time growing their business supported by a peer network. Demo days enable accelerators to activate that network, introducing investors to a hand-picked selection of startups. These introductions are only the critical triggers for more detailed conversations while the investor builds the business case. The entire process could take up to six months to finalise.
In a nutshell, then, a demo day is less about what happens on the day itself. Instead, two elements will define its success: the traction of the startup before the day, and the commitment of the accelerator afterwards. Without that combination, investors will look elsewhere.
A demo-day to-do list for entrepreneurs: Techstars Tips
· Take your own notes — preferably on the relevant individual’s business card
· Ensure that your co-founders have conversations with others: an investor is interested in the whole team, and more than one may be queuing to meet you
· Sometimes you’ll need to be pushy or persuasive to get your foot in the door with the person you want
· Do your research and target particular investors, rather than taking a broad approach
· Rehearse a conversation: know your introductory one-liner and unique selling points
· Expect that some investors will contact you after demo day and ask for financials etc. Be prepared
· Social proof and referrals are always stronger arguments, so it’s ideal if you can encourage another investor, mentor or industry expert to refer you to the investor
· Aim to set up another meeting as soon as possible to continue more detailed discussions after demo day.
In our opinion: view from the Solution Space
The MTN Solution Space Venture Incubation Programme (VIP) was designed as a hybrid between an incubator and accelerator. It provides startups with an incubator’s workspace and community, and an accelerator’s structured process which culminates in a demo day.
The VIP focuses on the business model discovery-stage where a founder is still establishing product-market fit and the viability of their new solution. Given the many unknowns at this early stage, some startups will not succeed or be showcased as a success story at the demo day. Not every company is assured great success and incoming investment.
Rather, if a VIP startup scraps or significantly revises their idea as a result of rigorous testing, these too are presented at the demo day. While this is unconventional from the norm, the VIP team believes it is important to showcase to a public audience the startups that don’t work, and the reasons why. While founders might learn painful lessons in deciding not to pursue their startup, ultimately venture capitalists and later-stage accelerators are seeking the calibre of founder who can learn those lessons as part of the startup journey.
MTN Solution Space is a space at the University Of Cape Town Graduate School Of Business for boldly envisioning and pioneering solutions. African innovation happens here.