This article seems to be in some conflict to how YC operates, which is designed around the demo day auction frenzy, where you might see valuation caps rise overnight on a rolling basis (I've seen some almost comical leaps in valuation in this regard), not to mention starting at prices in the $10-15M range. The ones that clear at those prices, on average, don't have the traction to justify it, which means the capital they get is often either second tier or first-tier call options. The net result is the best companies in the batch do just fine and because their prices, on average, were higher, YC and the company benefit from reduced dilution. The rest of the batch is then left with an inflated effective post-money that makes it harder for new capital to finance, especially if it follows an average growth curve.

New money doesn't particularly care you raised post demo-day at $15M if they think you're worth for example, at best, $12M now. It's a difficult conversation to have with founders and it can result in completely unnecessary pain around morale and optics. The worst loss is perversely invisible, as smart money might de-prioritize pursuing these companies knowing they have to work around the earlier mis-price. This is an opportunity cost that might not be apparent to most.

This is all complicated by the fact that demo day is in fact, not the first shot investors get at the companies in a batch. You might find that some of the most exciting companies in a given batch have been almost fully subscribed by the time demo day rolls around, as top tier firms don't wait till the actual demo day. Obviously, YC can't nor should they proscribe meeting with investors ahead of demo day, but this simply means access isn't as equally distributed as the notion of demo day might suggest. It looks to some degree like a second pass for folks without the network or access of a top-tier firm.

All this works great for YC, which, like every other fund in this world, makes money off power law returns, but it comes at a cost.

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