In venture – as in many walks of life – we have our slang, our shortcuts, our overused turns of phrase. Recently I’ve been asked a few times what is really meant when an entrepreneur is told ‘you’re too early for us’. It turns out to be a good question.
Of course, it can just mean what it says. You have an interesting idea, but it’s probably based more around a business model innovation or great execution than it is around breakthrough technology. We may not be sure it will scale, we’d like to see a few customer successes, a little more on the metrics – or somebody actually writing you a cheque. And it’s also worth being clear that ‘you are too early’ tends not to apply when your technology or innovation is genuinely ground-breaking. You can be insanely early with something that sounds like the stuff of sci-fi, as long as you have the potential for a solution to a real problem in a big market – and can show you’re qualified to execute it.
So, what do we mean otherwise? At Episode 1 we try and be responsive, honest, and give plenty of direct feedback, to try and help the entrepreneurs. Often that’s easy to do – ‘I don’t believe your financial model’, ‘you are going up against a number of well-funded start-ups’, ‘I don’t think your tech is strong enough’, ‘we don’t believe that’s how that market will evolve’ and so on. But sometimes we come up with nothing more thoughtful than ‘you’re too early’. Turns out that is shorthand for lots of different things.
You are too early. Yes you.
Are you fully committed to the journey? Tech start-ups have become glamorous these days, and there’s a lot of aspiration around the lifestyle. Perhaps you’re still in your current job, or consulting and doing something on the side, so you’ve developed a pitch or an idea and want us to take the first risk by writing you a cheque. The time-honoured way of founding a company is to quit your job, raise some money from friends and family, get some like minds to join you, create some sort of proof that there is a gap for what you’re doing, and hopefully attracting some evangelical potential customers. So, if you’re serious you should do it.
In founders, we want to see single-minded dedication to solving a problem. A belief that cannot even conceive of being wrong. In the case of most of our portfolio companies, that dedication is more like obsessiveness – we’re looking for a determination to run through walls to make something happen. If you’re not that committed, it’s hard for us to be.
You’re being told ‘No’
Sometimes ‘You’re too early for us’ is just a polite way of saying ‘No’. Often you come across a thought process in entrepreneurs that says if you can’t give me a good reason to say no, then the answer must be yes. But hard to believe as it may be, VCs are people too. And sometimes we’re just not excited about the problem you’re trying to solve, or we don’t have that deep belief in you as a founder, or we’ve seen variants of the same business plan a dozen times already this week, or we just don’t think we can add value. Investing at Seed stage means you are building a relationship that might easily last five years and could reach 10 years or more. We want to build a connection with an entrepreneur and share their passion for what they are doing. So, no matter how fantastic your idea for a new challenger bank might be intellectually, if it’s not something that gets us fired up, we will pass.
In these situations, running out of business plan logic and not wanting to revert to anything emotional or vague we may have occasionally leant on the ‘too early’ excuse. We’ll try and do better.
You’re too late
Ironically, ‘too early’ can often mean the opposite. We often see business plans that look good, but that target well-understood sectors or problems. You might have a fantastic new angle that presents a real opportunity, but because there are lots of well-funded teams out there already, or because customers already have lots of choices, we need to see that what you are trying to do really is a game changer. For example, if you look at AI, four years ago if you came to us with a distinguished engineering team and a vision of disrupting finance, automotive, or pharmaceuticals we might have taken a risk. Two years ago, that AI team needed to include some relevant industry expertise and privileged access to data. Today we would want to see something being built back from a real customer need, with customer testimonials or revenue proof points – the AI is now just the enabling technology.
There is something common to all of these interpretations of being ‘too early’ for a VC – a lack of conviction. Conviction starts by being gripped by the team or the idea, and only then comes the search for evidence to support that. It’s that way round, something people fail to appreciate. The challenge with early stage investment of course, is that evidence is often limited or intangible. So, you can have a situation where a company can receive investment ahead of another on what appears on paper to be less traction. Entrepreneurs can find this confusing, as they tend to compare evidence to evidence.
So, if a VC does tell you ‘You’re too early for us’, ask for clarification and take on board whatever advice and criticism you are given. It might help you focus on what really is important about your business – or about you. Because if someone extraordinary walks in and shows us a real knock-it-out-the-park idea that solves a big problem – then it’s never too early.
4th floor, 112-116 New Oxford St, London WC1A 1HH