How does this prepare founders for the eventuality of needing to sell their protect in a similar way that they are pitching their demo?
Unfortunately, start-ups don't function like normal businesses. If they can't get their name out there sufficiently, they'll die before the market takes its sweet time "figuring it out."
Demo-day results are suggestive, just like SAT scores. It's a measure of the founder's ability to sell (which is arguably the most important task for a CEO).
It doesn't matter if it's a great product. Amazing products have been created and destroyed when the founders couldn't market it to an audience.
Much like your inclusion of this typo, maybe it's the criteria for the "eventuality" that is problematic. Does the VC industry have a means by which to take imperfect people seriously? Before they're a CEO with $10B in funding, that is.