If we delayed the investment, the investors would lose money. The investors are counting on indexing to generate returns. If they invest at the start of the YC cycle, all the startups take it, including the one that will later turn out to be the star of the batch. By Demo Day, though, there is a good chance that the star will have started to emerge and already have enough money. So this strategy would cause the money to go to the medium-good startups, which is not good in a domain with a power-law distribution of outcomes.