If you’re at all plugged into tech Twitter, in any given week, you’ll see at least a few tweets about how to decode VC feedback. This advice is generally directed at first-time founders who are just embarking on their first fundraising process. These threads include a bevy of jargon like “LP,” “GP,” “TAM/SAM/SOM” and “distribution” that anyone getting into the field should know.
They also make note of more insidious language, however. These everyday phrases don’t draw much attention at first glance but have nevertheless earned the ire of exhausted founders across the spectrum. The claim “It’s a little too early” reigns supreme as the worst offender in this category. The time has come to retire this phrase once and for all.
The VC Ecosystem and FOMO
Venture capital is a funny industry, built atop FOMO, backchanneling and who you know. Venture capitalists walk a fine line: They must identify the Next Big Thing before it gets too big. Because it’s risky to invest alone, though, they must either 1) work to convince their fellow VC firms to buy in to the early vision they’ve identified or 2) hop on an investment only after someone else has crowned it worthy of VC interest.
Most VCs focus on the latter approach both because it’s easier and because there’s a very real element of self-perpetuation once VCs start pumping a startup. We can see countless instances of startups that garnered more VC buzz than actual customer/user buy-in, inflating companies with abysmal metrics to multi-billion-dollar valuations on nothing more than hope and vision (see: Theranos and WeWork for two high-profile examples).
This dynamic creates a huge divide for founders. There are those who can build VC FOMO, and those who cannot. And in many cases, though not all, those who can build FOMO are not the same as those who can build good companies and products.
So, for founders and teams who are more focused on product-building than the inner workings of the VC world, pitch meetings often turn into a demoralizing series of conversations that go nowhere but still span a period of months or even years. Even stellar metrics and an ambitious vision can’t close the gap in many cases. This disparity is why a company with fewer than 10,000 users can reach a $30 million valuation almost overnight while a company with five times that user base can barely close a $30,000 check from an investor.
Venture capitalists, meanwhile, are constantly hedging their bets, hoping to avoid upsetting the founders they’re rejecting on the off chance they become successful despite their lack of funding, lest they be left out of a future Series A or B round. So, time and time again, founders with solid products built through years of work hear the same feedback on why the VC is passing: “It’s too early.”
It’s Not Actually Too Early
“It’s too early” is a catch-all piece of feedback that seems reasonable but really means nothing at all. Sure, sometimes it probably means what it says: A product or company idea is too early to invest in and hasn’t been proven yet. More often, though, this phrase is just a piece of rhetorical misdirection intended to deflect blame. The truth is there’s not really such a thing as being too early.
When it comes to early stage (pre-seed and seed) ventures, most people will tell you VCs are making a huge mistake if they’re basing their decisions on the specific product rather than the team. Early stage startups are very likely to go through one or more pivots before finding a product-market fit. Smart investors put their money behind a team they believe in, not a product. That’s why saying the product is too early misses the point.
At the same time, plenty of companies have raised millions of dollars based on pre-product ideas. Think about that for a second: The same VCs investing in literal ideas are telling some other full-fledged companies with working products that they’re too early for investment.
“It’s too early” often really means something closer to “I don’t care enough to go into the specifics of why this market is not one we’re interested in” or “I want to see that other VCs are bought in before I take on any risk myself.” But it could also mean something more insidious: “You don’t fit the mold of founders I invest in. Your educational/ethnic background doesn’t inspire confidence,” or “Your gender/sexual identity is too far outside of what’s palatable to VCs.”
“It’s too early” is a comically lazy piece of feedback from VCs. These are the same people who expect founders to invest every waking moment of their lives and a big portion of their savings into building products and companies that generate inordinate amounts of wealth for their investors. Worse, it’s pervasive. It comes from the top-tier, old guard of Silicon Valley, but you also hear it from newer, boutique VC firms that bill themselves as super-inclusive but are unable to kick this nasty habit.
The Harm of Swimming in Jeans
This phrase isn’t just disappointing; it’s also actively harmful for founders. Imagine for a moment that you’re a high schooler hoping to join the varsity swim team, but you don’t have a swimsuit.
“No problem,” the coach says. “Just jump in with your clothes and show me what you’ve got.” Desperate to prove your worth and join the team, you dive in and swim alongside the team, keeping pace with the swimmers in Speedos despite your waterlogged jeans weighing you down. Soon, though, you start getting tired.
“Have I earned a Speedo yet, Coach? I think I could do much better with the right equipment,” you ask. “Hmmm ... let’s give it a few more months like this, it’s a little too early to be sure you’ll make good use of the suit,” he says.
You’d feel discouraged, demoralized and embarrassed. You’d probably think there was actually something wrong with you and that you weren’t as good as you thought. You’d question all of your successes and worth.
Startup founders face a serious mental-health burden that isn’t discussed nearly enough. Having gone through the process myself, I believe that a lot of the problem lies with the lack of effort early stage VCs put into pitch feedback and investment scouting. It sows the seeds of self-doubt in nascent founders.
The problem is much, much worse for underrepresented founders who are often left trying to puzzle out what exactly is wrong with their product and what they’re doing wrong. Some founders succeed despite their circumstances. Tope Awotona, the founder of Calendly who built a multi-billion-dollar company with less than $1 million in institutional investment, is a great example of this type of success story. But his experience is far from the norm.
A Simple Change With Big Results
Unfortunately, for many founders, and especially those in markets that need a capital infusion to prove viability, failure is inevitable. It might be hard to believe that there are founders out there with successful-looking companies who are secretly battling depression and anxiety due to the invisible underbelly of tech that is VC, but this is the ugly reality of the startup world that doesn’t get enough attention. But the good news is that there are solutions.
Fundraising and venture capital, just like most parts of life, are not fair. Despite what Shark Tank has led the world to believe, fundraising is more a sport of endurance and less one of merit. Venture capital firms are run by people who are imperfect, just like everyone else, so subjectivity and bias are bound to play large roles in the decision-making process.
But in 2021, VCs — especially those who loudly took to Twitter the summer of 2020 to extoll their commitments to anti-racism and racial equity in the tech world — have a choice to make when it comes to how they speak to founders. Countless parts of the machine could use major improvement, but one easy place to start would be eliminating the phrase “too early” once and for all.
I, for one, would love to see a world where VCs put the same amount of effort into their feedback as they expect founders to put into building their products.