Decoding VC Jargon: What does it mean when VCs say “You’re too early?”

What’s one of the most frustrating pieces of feedback a founder can receive? 

“You’re too early.” 

This feedback is generic and entirely unhelpful, yet is a phrase VCs fall back on too often. So what does it actually mean? 

Frustratingly, this can actually mean lots of things. It often means that your startup is a risk the investor is not willing to take…yet. Essentially, “come back when you can show there are real customers out there.” We want to see more sales or users signed up.

Unfortunately, sometimes this can mean they aren’t interested at all. This can come down to a lack of conviction that the market opportunity is big enough, or that the product is a right fit to address the market need. 

As a VC in the early investment stage, our job is to take leaps of faith, backing companies extremely early in their journey. But these aren’t blind leaps of faith — there is a lot of consideration that goes into making decisions on which companies to back. Most of it comes down to how we perceive the risk and return on the opportunity, and of course, whether we share a passion for solving the problems being addressed.

Why “You’re Too Early” Isn’t Always a Bad Thing

Keep in mind, most early-stage VCs sift through thousands of deals per year, take meetings with hundreds of founders, and can only invest in the top percentage of the companies that are pitched to them. We have to make decisions quickly and with limited information. VCs are also tasked with predicting the future by assessing risks and potential rewards. This comes down to a combination of art, science and general gut instinct. While we are equipped with assessment tools and years of experience, accurately predicting what has the potential to reach unicorn status is next to impossible. 

By saying “you’re too early,” we might actually think you’re too early and need additional data points to make a decision. If this is the case - try to get clear on what would help further de-risk your startups i.e. more revenue, a bigger waitlist, and early users who rave about the product. But “too early” might also be a soft rejection to maintain a good reputation and avoid hurting your feelings, or to leave the door open in case your startup starts to skyrocket.

Understanding the VC Mindset

Here's the thing, "too early" is a catch-all phrase that VCs use, but it might indicate various underlying concerns:

• The Business Proposition: Maybe we're not wowed by the idea, or we've heard it a dozen times that week, and don’t see any differentiation.
• Founder Skepticism: Perhaps, we're not entirely sold on your capabilities as a founder or don’t believe that you're the person to build this business.
• The Problem's Urgency: Using the "Vitamin vs. Painkiller" analogy, we might think you're offering a vitamin when what the market needs is a painkiller. A vitamin is nice to have, but a painkiller is necessary. In today’s B2B environment, it’s critical to solve high-priority problems, otherwise, it simply won’t get the attention it deserves.
• Business Metrics: We might need to see more growth or traction to be convinced about your startup's viability.
• Lack of Domain Knowledge: Maybe we aren’t well-versed in your industry, making us hesitant.
• Surface-level Research: We could believe you haven't delved deep enough to understand the problem, the target audience, or the execution of your solution.

Why VCs Might Pass on Your Opportunity

There are also a handful of reasons why a VC might pass that have nothing to do with you.

• Out of Our Ballpark: It might simply be outside our investment thesis
• Ambition Levels: If we can't envision your company hitting that sweet $100m+ revenue mark in 7-10 years, we might pass. Remember, VC is a game of big ideas, not humility.  
• Déjà vu: Past failures with similar ventures can make us cautious.

How to Prove Traction Points 

• Actual paying customers (they speak volumes)
• Show a commitment from people who are willing to pay (i.e. beta tests)
• Tangible commitments and validations that show a willingness to use, be it through MOUs, waitlists, or in-depth customer interviews.
• Expert insights into a problem and solution needed

While paying customers are gold, they aren’t the be-all and end-all for us. It's more about showing us you've got market understanding and execution prowess.

Bouncing Back and Moving Forward

It’s your job as a founder to advocate for your company and dig for better feedback. Ask more specific questions to get clarity on whether it's genuinely about timing or if there are other factors at play.

Some specific questions to dig a little deeper and get meaningful feedback:

• What needs to be true of me, or my product in order for you to revisit this conversation in the future? 
• Do you have any competitive companies in your portfolio right now? 
• How can I better derisk this opportunity for investors? 
• Do you believe there is a big enough market for this solution? If not, how can I pivot to capture a larger market?
• Do you truly believe this is a timing issue, or is it more of a conviction issue? 

Founders, remember that the VC world is complex and "too early" is often less about your startup's worth and more about an investor's risk appetite at a given moment. Instead of being disheartened, use it as a learning opportunity. Refine your pitch, validate your market, and always keep pushing forward. Every feedback, even the vague ones, is a stepping stone towards your ultimate goal. Stay persistent, seek clarity, and most importantly, believe in your vision. Your breakthrough moment might just be around the corner.

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