Number 1 Lie That Early Stage Investors Tell Founders (And What They Really Mean)

“You are too early.”

When a pre-seed or seed founder hears this from a supposedly early stage investor, confusion ensues. “But… how can you be too early for a first check investor?!” When VCs say this, they don’t necessarily mean to lie - they are just taking an easy way out. So what do they actually mean?

#1: “You haven’t de-risked a key success factor that we are worried will kill your business.”

"You're too early" sometimes means there is too much absolute risk. Every company’s success depends on a few key things that have to become true for the company to be successful – and sometimes those success gating factors are well-known to be virtually unsolvable, rendering investors skeptical about your ability to do so. You don’t have a CTO so can you really build this super awesome new technical innovation you are describing that no one has been able to create? Can you receive regulatory clearance to operate in a highly-regulated industry? Will you be able to sell to the difficult customer base you have described that is known to avoid startup vendors?

In this context, “you are too early” signals a worry that a startup won’t be able to get over a key hump to truly get going. Show enough proof points that you can indeed de-risk key aspects (unlike the graveyard that is previous generations of startups tackling the same problem) and investment interest will follow.

#2: “We would rather invest later (assuming certain conditions are met).”

"You're too early" sometimes means investors are concerned about relative risk. For multi-stage investors, the investment/pass decision is not just “why should we say yes?” but also “why should we say yes right now?” Those investors look at the risk vs. reward of investing at different stages. If key factors they are worried about are de-risked, or they believe a team is the absolutely best team to ever tackle a given problem/product, they will invest as early as possible to maximize their eventual return. But if they aren’t fully convinced that this is the team/product to make it big, it might make more sense to wait until the next round when yes, the price is higher, but also the risk is lower.

This is particularly true of lead investors in winner-take-all product categories who take conflict of interest seriously - no one wants to back the wrong horse then be conflicted out when the eventual winner begins their fundraising process.

#3: “We don’t like it but we don’t want to say so (for any number of reasons).”

"You're too early" is sometimes just a way of saying, we want to pass, but want to save face. Passing on startups is quite possibly the most miserable part of being an investor – and we have to do it 98-99% of the time. Saying no is no fun, so the softer not-a-no-just-too-early-no is much easier (and yes, more cowardly) for many investors.

Many VCs don’t like to straight pass with a “we are not interested” because of at least one of two reasons. One, when you pass, many founders ask for your reasons, and giving true rationale frequently opens up a debate. Giving constructive feedback (based on true pass rationale) is not always appreciated. Many founders also feel like they can persuade an investor that their reasoning is wrong, wasting time for both sides – the reality is that you cannot argue your way into a “yes” decision.

Second, early stage investing is basically an exercise in educated guesses as to which companies have a chance of becoming huge successes. We evaluate potential based on our experience, understanding of the market, and very little actual data. We are wrong a lot – the VC game is to be more right than wrong from the dollar value created vs. committed perspective. When an investor passes, there is a huge chance that they are indeed wrong – so even if they hate your startup idea right now, they still want to retain the optionality of investing in the future in case they are wrong (again, this is particularly true of multi-stage VCs).

So there you have it. Sometimes “you are too early” means you have to de-risk a potential company killer. Sometimes “you are too early” means the risk-reward might be better at a future round. Sometimes “you are too early” means avoiding lengthy discussion and/or retaining optionality to invest in the future. And sometimes “you are too early” means exactly that (so avoid pitching investors who invest exclusively at later stages than your company’s current status!).

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