Have done demo day twice, and I can confirm. It was way, way worse the second time around. Lots of companies had filled out their rounds by demo day, despite the official YC advice (i.e. "don't fundraise until demo day").

Also, it's not a subtle effect at all, particularly now that demo day is split up into batches with similar companies grouped together. If you're presenting on the same day as some company close to your space that has raised millions, it looks bad. Investors routinely ask who else has invested in your company. If company X has a long list of name investors and you don't, investors want to put their money in company X. It's a downside of the dynamics of the feeding frenzy created by demo day -- investors have little to go on, so they make a big deal out of herd signaling.

Obviously, this doesn't matter for the hottest deals, but most companies in a batch aren't hot deals, and the hot deals don't need demo day in the first place.