(FORTUNE Magazine) - You're among the 70 contestants chosen from more than 700 hopefuls who tried to get onto this stage. For months you've prepared for this moment. You've shelled out tens of thousands of dollars to bring yourself and your posse to this darkened ballroom on a sun-splashed desert morning in mid-February.

Now you've been allotted precisely six minutes to show what you've got. The lights are on you, and you're talking fast, demonstrating your new gizmo, trying your level best to impress a roomful of smiling, Treo-toting venture capitalists. If you're a smash, the VCs will want to offer you bushels of cash for control of your fledgling company. You crave their approval, you fear their rejection.

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Your only comfort is that Google (Research) and Yahoo (Research) are in the room too, and the VCs fear them even more than you fear the VCs. You're at Demo, and the clock is ticking.

The annual ritual known as Demo is part Sundance Film Festival, part American Idol, and part speed dating for entrepreneurs and backers. Each year in Phoenix a select group of inventors, visions of riches dancing in their heads, get the chance to debase themselves quickly before a group of financiers, who in turn are prepared to stab one another in the back to capture the choicest opportunities.

"It's a great event, especially if you understand the dance that's going on: entrepreneurs acting like they don't need capital, and venture capitalists acting like they don't need entrepreneurs," says venture capitalist Guy Kawasaki. Participants' behavior at Demo, he says, is a bit like "acting prudish in a brothel." (Read Kawasaki's blog at http://blog.guykawasaki.com .)

"I'm not raising money, but I've probably been approached by ten VCs today," says Hans Peter Brondmo, who heads a San Francisco startup called Plum.com that allows users to organize personal content according to their interests and then lets advertisers target them accordingly. "It's like dating," he says. "Who's most desirable? The least available girl."

Name dropping works too. One of the buzzier startups at Demo this year is VSee Lab, a San Jose provider of an ultrafast web-based video-conferencing service. Founder Milton Chen manages to note in his short pitch that Intel (Research) CEO Paul Otellini broadcasts his speeches via VSee. Chen tells me he isn't after venture money right now, though "about 30 VCs have come over." (For Peter Lewis's picks of the best products from the show, see the Gadgets column).

Patrick Cummings, chief executive of iGuitar in Poughkeepsie, N.Y., owns up to being in the market for $2.5 million in venture funding. His company makes an electric guitar that plugs into a computer using an ordinary USB connection, turning the guitar into a keyboard-like learning or song-writing tool.

"I met Bob Weir in January at Macworld," he says, as if Apple's annual conference were the most natural place to hobnob with the Grateful Dead guitarist. "He's joining the executive team." "In what capacity?" I ask. "As an advisor."

The surest way to a VC's pocketbook other than outright indifference is to let it be known that other VCs are circling. Ugobe, which plans to market a delightful robotic dinosaur named Pleo designed by Furby creator Caleb Chung, came to Demo having already raised $2.5 million. It's eager for more.

Gordon Radley, a Ugobe board member and former president of Lucasfilm, hovers near Ugobe's booth after the company's demo. Radley allows that heavyweight VCs Battery Ventures and Draper Fisher Jurvetson, among others, have been sniffing around. "In so many words, one said, 'We have the money, what do you want to do with it?'"

Demo didn't start as an entrepreneur-VC meat market. Stewart Alsop, a former journalist (and, for years after he became a VC, a FORTUNE columnist), noticed that geeks often stood in the hallway of Alsop's first conference, Agenda, showing off their latest toys. He started Demo in 1991 as a venue for more structured show-and-tell.

In 1998, Demo's current organizer, Chris Shipley, decided to award almost all the event's slots to startups that would launch their companies or products at the conference. It was a "happy accident," she says, that the new format attracted an audience heavy on VCs. Demo seedlings that sprouted beyond the startup phase include Palm, TiVo, and Skype. Yahoo has bought two e-mail companies that made their debuts at Demo.

Corporate shoppers like Yahoo and Google, each of which sent representatives to Phoenix, loom large. The worry among VCs is that a corporate acquirer spending easy-to-sell stock can swoop in and ruin giant future payouts for VCs. "A lot of these companies could get picked up by Yahoo for $30 million, a huge success for the entrepreneur," says Tom Shields of Woodside Fund. Selling a company for only $30 million, says Shields, "would be a huge failure for me."

VCs have one another to worry about as well. Michael Skok of North Bridge Venture Partners is wooing Steven Lavine, CEO of search-technology company Transparensee. Lavine already is in deep discussions with other firms, so Skok plays the trust card. The average startup remains private for 6.7 years, says Skok. "I told Steve, 'If you're going to spend 6.7 years working with someone, you better be sure there's a good level of trust.'"

David Hornik, a partner with August Capital, meets at the end of a long day at Demo with Manish Chandra, CEO of Kaboodle. It's Hornik and Chandra's third meeting, and Hornik talks about how his family is using Kaboodle's shopping-oriented site. He mentions some hot companies he has funded whose experiences are relevant to Kaboodle.

As for Chandra, he lets on that in addition to August he's talking seriously to a couple of other VCs, one of whom also is at Demo. Hornik is philosophical. "There's a cadence to all of these deals," he says, clearly hoping he's still in the running at Kaboodle.

As Demo draws to a close, conference organizer Shipley anoints ten of the companies as Demo "gods" on the strength of their presentations. Howard Thaw, co-founder of one winner, Iotum, which has developed ingenious software to screen incoming phone calls, e-mails me shortly before 11 P.M., just after the conference has concluded. ]

"Some VCs are already sending congratulatory notes, with requests for confirmations of follow-up meetings," he writes. "One of them has summoned us to an all-partners meeting on Tuesday." Thaw, in a moment of exuberance, has revealed what Demo is all about. Producing nifty technology and nailing your demo, after all, are nice. Collecting the cash is what makes you a true Demo god.

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