For what it's worth, 500startups has done this for long time. They don't tell companies whether they are going to provide follow-on funding (even though it's in the original terms as an option) until significantly after Demo Day, for the same reason.
That's not the same, YC has never provided follow-on investment and this doesn't change that.
This policy affects investments made by individual partners. I'm sure 500 startups does not stop it's mentors from investing right after demo day, or does it explicitly do that?
It actively encourages mentors to invest. The reason is because a) there are so many that most companies can raise a little from at least one mentor, b) all companies in a batch are encouraged to raise a small amount of money prior to demo day, and c) mentor investment isn't typically seen as a signaler as they aren't 500 partners. It helps, as any outside investment helps, but 500 following on is the real signaler, at least in my experience.
He actually has a rule of not investing personally. Granted I don't know if that's explicitly true, but I haven't heard of him investing personally since 500 was founded.
Partners can't invest.
500startups mentors != YC partners - the closest to that is basically 500startups investing a follow-on, it has the same signal as YC partners investing in YC companies during the accelerator program.
P.S: I'm the co-founder of a company who was in Batch 6 of 500startups.
