I’m quickly getting excited about the next cohort of my fundraising accelerator program. If you haven’t checked it out– I’d love for you to read about it→ fundraisewithconfidence.com

The program starts Sept 12 and enrollment ends in one week on Sept 6th! (21 great founders have already signed up)!

…and now on to this week’s content for 8.30.22

“You’re too early” - the why and how to react

Aka the most misleading pass on earth

It’s the most common pass founders hear. It’s also the least forthright and most damaging.

If you're a founder that's ever pitched an investor, there's a good chance that you've heard it.

“You're too early.”

And my guess is that you completely misunderstood the feedback.

It's important to shed some light on this pass because not only do founders misunderstand it, but oftentimes it leads them down unproductive paths. When they hear “you're too early,” they focus on making incremental progress in order to satisfy that investor when the statement “you're too early” means something entirely different.

(btw - I reference “you’re too early” far too often to type that every time in this essay. We’ll go with YTE from here on out. 😛

Some background

In the game of venture capital, passing on deals is one of the least enjoyable and least productive things that you have to do on a regular basis.

Passing sounds like a simple task. Just say “Hey I'm not investing” right? Not so fast….

The way an investor passes is crucial because a venture capitalist's reputation is one of the most important assets that they control. A founder’s experience during their interaction with an investor can greatly impact how the community perceives that VC.

YTE is the easiest and least painful way for a VC to pass on a deal. It’s the softest delivery of bad news for a founder which protects the VC’s nice guy reputation. It’s believable and easy to explain (Well how much further do I need to go? Further than where you are, duh).

Last but not least, it has the added benefit of indicating they would be open to looking at the deal in the future…should you make more progress (read: when other investors are interested). Here’s one of the passes Brian Chesky received when he was fundraising for Airbnb, instructing him to “keep us posted”:

In other words, it accomplishes their immediate goal of getting the deal off their plate… but not entirely.

Why not entirely?

Well what if for some crazy reason they were wrong! And then you started building over the next few months??

What if they fully passed, and you were the next generational startup investment.

The truth is, YTE rarely actually means “everything is fine. I’m actually very interested, you're just slightly too early so if you make incremental progress I will do the deal.”

YTE is much more believable coming from an investor that completely focuses on a much later stage like Series C when you're a pre-seed company, but even then it can be misleading. Firms that focus on later stages increasingly allocate capital to earlier stage deals. In 2021, Tiger Global – which was known for their aggressive approach to investing in growth deals – popped up as the lead in seed stage companies.

And most often, when you hear YTE it’s not because you’re talking to a growth fund as a seed stage company. You’re talking to a firm whose stage focus is either squarely at your company’s stage or at least it looks like that if you squint. In those situations, you know YTE isn’t the reason because a cursory search of Crunchbase will show you deals they've done in companies with similar levels of traction.

They are completely comfortable investing at your stage... You’re not too early.

What YTE actually means is “I couldn't get excited.” It means, “You didn't interest me enough to cause me to move forward with this deal.”

It's important to hear this because you need to understand what that feedback means. Only then can you plan what to do about it.

At this point, if you were looking for some incredible judo tactic that takes YTE and feeds it back to them in a different way that miraculously convinces them to move forward with your deal…

…you've come to the wrong place.

What to do with YTE

(continue reading...)

Smart Twitter Takes

Funny take on reality. The days of first intro to term sheet over the weekend are over. Be prepped for actual dilligence

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Agree. You have to care about the success of your business enough to power through quick firing, harsh feedback, etc. Def not easy…

P.S. ADHD frenz out there feel me??