Podcast: When Investors Say “It’s too early”

When you’re an early-stage startup, and especially a first-time founder, there’s going to be one saying you’ll hear more than anything while fundraising. The dreaded quote “it’s too early” unquote. It’s a bit of a generic reply that investors will give you, that of course is if you’re lucky to get any response at all. But why do investors say, or at least think this so often? Let us rant a bit on this and talk about how to deal with such replies.

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Rough transcript:

(Not copy edited)

When you’re an early-stage startup, and especially a first-time founder there’s going to be one saying you’ll hear more than anything while fundraising. The dreaded quote “it’s too early” unquote. It’s a bit of a generic reply that investors will give you, that of course is if you’re lucky to get any response at all. But why do investors say, or at least think this so often? Let us rant a bit on this, talk about how to deal with such replies. 

To start saying “its too early” is a much nicer way of saying “no”. At the same time, an investor who might not be ready to invest today wants always to keep the door open for tomorrow. Things move fast in our industry, and anything is pretty much possible. Perhaps tomorrow you close a big customer, or another investor will jump on board. When this happens, you might find that yesterday’s it’s too early” investor is more than ready today. Such is the nature of our business and the sheep-like mentality of startup fundraising.

This can all be a bit frustrating because, duh, of course it’s too early. It takes a long time to build a startup and, in some cases, many years of wheel spinning before you get some traction and move the business forward. You probably also think you have made enough progress for investors, which, may or may not be true. Regardless, you will in many cases have to keep reminding your investor pipeline of your progress and keep them updated as you made more. Because when it comes to doing early stage investing there is one thing investors are looking for more than anything, that being momentum. 

I’m thinking back to the literally 1000s of startup pitches I’ve received over my career. And yes, I’m sorry tostroke0 say I have also uttered those “it’s too early” words more times than I care to admit. However when I do there’s something I almost always also say. That being, “please 5’m me updated, feel free to add me to your investor update emails”. The founders usually politely nod and agree to do it and in almost every case they never do. In fact, among those 1000 or so pitches I can only recall 2 founders who continued to send me ongoing monthly updates. One still does to this day even though I have since moved on from not 1 but 2 funds where they originally pitched for investment. Yes, that is right, about zero point 2 percent of founders actually sent me updates after receiving a no. Why is this? Well, I think founders tend to think of a pitch meeting as a bit of a one-night stand. You either got laid, or I guess more accurately paid, or you didn’t. And if you didn’t, you slinked away to whatever dark corner you emerged from never to be seen again. Unfortunately for first-time founders that does neither of us any good. To get new investor’s money they probably want to get you to know you beyond that one hot pitch and build a real relationship. But founders are both frantic and spastic and quickly move on. Big mistake. 

So what should you do instead? Well regardless if you get a no or no answer at all just start to send the investors you speak with quick monthly updates. Trust me, investors already get a lot of emails, mostly junk or cold pitches, so they’ll actually enjoy to get something with a bit more substance. Most importantly, it will help them see you progress and maybe, just maybe, they’ll jump back in and consider an investment down the road. Worst case, your startup will stay top of mind with them which is a challenge when you think about how many pitches investors are looking at each year. This is probably the easiest thing you can do to convert investors and still it’s one the least used tactics by founders. I guess it goes without saying that is you already have existing investors you should also be updating them every month! If you haven’t here is your friendly reminder and I would also add that these updates can be sent to any potential future investors as well. 

But what should these updates contain? Let’s break it down and, oh, be sure to look in the description of this podcast to find a link a free template you can use. 

To start these updates should be very very short. Don’t write a novel and don’t even prepare slides or PDFs. Text is all you need and keeping the updates inline within the email will also ensure investors are more likely to read them. I see a lot founders get stuck or just avoid investor updates because they think it needs to be a big production, when it really should not. Your investors will spend about 30 seconds reading them, so you should not spend more than 5 minutes making them. 

In terms of the structure, it just contains 3 parts. The first is the opening which should be 1-2 sentences about what happened in the last month. Again there is no reason to tell them everything, just the most important changes to the business in the last 30 days. Keep it upbeat and highlight your wins in either traction, new hires, or product updates. 

For the next part you just need 3 bullet points that are primarily your main business metrics. Things you can quantify are best and things that ideally easily show momentum. For most business that first metric should of course be revenue, but it might be something else like downloads or pipeline value. The next bullet point should be your north star metric, if you dont know what that means do a bit of googling but in short, it’s a way to quantify the value your product provides. For example with spotify their north star might be the total numbers of songs listened to per month. Your 3rd and final bullet point is a bit of a wild card and something highly specific to your business. It might even be something related to new hires, or perhaps a big new customer you’re working on. In the case of all these bullets put in parenthesis after each on the change month over month. I go a bit further and put this metric in green to signal to investors that shit is happening and it’s positive. 

Now for the final part of the update, “the ask”. Here is where you solicit for advice, an introduction or other help with the business. As your investor network hopefully has interesting connections, it’s a great way to get them engaged in the business even before they invest. An example of this might be “We are looking for a high-level contact at Facebook, please reply to this email if you can connect us”. The ask serves two purposes really. It signals what you’re doing next while also showing you’re coachable. Furthermore it’s the best way to determine if an investor is genuinely interested in your startup. If they reply, and try to help, then you know they are. If they do that and it has been awhile since you last pitched them it might be a good chance to ask for a new call and try get them onboard. 

I’ll close this episode with a rant about how sending short monthly updates is by far the easiest thing you do keep both existing and new investors happy. I’ll also shame you founders who are probably not doing this! I know your life is busy and hectic but think about just a few things you’re spending 5 minutes on that could be better used writing these updates. Perhaps you don’t need to send that tweet or attend yet another tech conference for example. I mean in the time you have spent listening to this podcast, well, you probably could of sent an update. So please take those airpods out for just a moment and get to writing. Be sure to look in the description of this podcast for a link to my monthly investor update email.