Why investors should stop saying “it’s too early”

Photo by Sage Friedman

Note: This was originally published as a LinkedIn note.

As an angel, I frequently help other founders with fundraising. One of the most common rejection reasons they hear is, “It’s too early.”

This is so vague. It’s also baffling when it comes from investors that have recently invested in pre-revenue and even pre-product companies. What could be earlier than that?

Here’s the thing. “Too early” is often just the short version of, “I don’t have enough conviction to invest now, but I’d like to stay in touch and invest later if things take off.”

So why don’t investors just say that? Because founders tend to confuse “I don’t have conviction” with “you don’t believe in me.” It feels personal, and investors don’t want to burn bridges.

Fortunately, this is solvable.

With transparency and thoughtfulness, investors can say “not now” in a way that is more helpful and relationship-enhancing than “it’s too early.”

Investors: be honest about what’s holding you back.

Here are a few examples:

• “Your product and execution looks great, but I don’t know enough about the space and I won’t have time to do the research on the competitive landscape until 2 weeks from now. If that’s not too late, I’d be happy to reengage then. In the meantime, I can introduce you to a couple of potential customers.”
• “Your market is huge and I think you’ve nailed the problems and solutions. My one hesitation is that this company requires a strong technical team and neither of the founders have hired engineers before. I’d like to wait until you have a few people in place before investing. If useful, I can send you some referrals for recruiting agencies and technical screening companies.”
• “Your market is new but growing quickly, and I’m confident a solution like yours can become a big company in the next 10 years. However, I’m hesitant to invest right now because scaling this business requires either consumer virality or a strong B2B GTM motion, neither of which the founding team has done before. I have no doubt you can get to X users, but I’d like to wait and see a scalable way to get to Y (even if you haven’t necessarily hit that number yet) before I’d have the conviction to invest. If you’d like, I can introduce you to another investor that might be able to help with the consumer virality angle via partnerships.”

Note the playbook here: be specific about what you do and don’t have conviction on, and offer specific help to close the conviction gap.

Founders: don’t take it personally. Feedback is a gift.

Even the absolute best companies that get multiple term sheets also get many rejections. New founders tend to get discouraged and take this personally, but experienced founders know it’s just part of the process. Here are a few ways to think about it:

• Unless you handpick who you reach out to, a bunch of investors you speak to won’t be relevant. They either (a) don’t invest in your stage, (b) don’t know / specialize in your market, © have a conflicting investment. In other words, it has nothing to do with you.
• If every investor you reach out to wants to invest, your valuation is likely too low. Some of the most well-executed fundraises I’ve seen were when founders asked for an amount that most people said was too high, but just 2–3 investors thought it made sense and gave term sheets.
• Investing is highly subjective. This isn’t like math or some other discipline where there’s always a right answer. As one example, Bessemer is one of the most well-known VC firms out there and they met and passed on Facebook, Google, Airbnb, and many other great companies. Check out their anti-portfolio. The same is true for every other VC firm out there.
• Investing isn’t purely about assessing outcomes, it’s also about assessing founder-investor fit. Depending on the firm, an investor might only make a handful of investments per year, and they’d ideally enjoy spending time with these founders and feel that they are able to actively contribute to the company’s growth. Increasingly, investors want to bring value beyond the check. So in cases where an investor doesn’t know the market well or thinks their network isn’t likely to be helpful, they might pass.

Recap: Founders and investors are people too.

Treat each other as people. Build real relationships and genuinely try to help. That’s it.