Probably the top objection that smaller companies hear when raising money is…
…“you’re too early.”
As in the business’ current financial performance is just…
….not all that impressive.
The investor usually accompanies the objection with the euphemistic send off: “Come back when your company is more financially impressive and we can we can talk then.”
Most entrepreneurs – being trusting, good souls – will normally take this to heart and at face value.
They will politely thank the investor for their time and feedback, and then earnestly get back to work building and growing their companies.
Which is both exactly the right and wrong thing to do.
It is, of course, the right thing because there is no substitute for quality, organic business growth and progress.
But it is the wrong thing because almost always the “too early” feedback is a symptom of some other vexing business illness.
This is best illustrated by the tens of thousands of companies that are financed and valued everyday at extremely high (often infinite) multiples of their top and bottom line financial performance.
These companies range from some of the biggest and most highly valued public and private companies in the world – names like Facebook, Amazon, Uber, and more…
…to the tiniest and most speculative startups competing in industries and markets as low tech and low glamour as consumer products, retail, consumer products, and professional services.
And please let’s be clear: the fundraising success of these companies is not a fluke, nor a sign of a market bubble, nor part of some conspiracy that rewards some financial “elite” at the expense of everyone else.
No, almost always “too early” is not the real reason why an investor doesn’t invest.
Instead, it is credibility.
As in, they don’t believe the entrepreneur can get it done.
Not now, and not ever.
Ah, but what if the entrepreneur actually attains financial performance the investors claim they are looking for…would they then invest?
Well, in my 19 years of owning and leading an investment bank, and being involved with hundreds of financing transactions, I have never seen this actually happen.
Most often the company never attains the financial milestones that the investor was looking for, thereby making the whole discussion moot.
Or, in those rare circumstances when they do, some other reason – market, competition, technology, valuation, etc. – arises to short-circuit a deal.
Luckily, there are really only two paths of entrepreneurial response when confronted with the “too early” objection:
The first path is just to ignore it.
Because it is just an opinion, which everyone has, and usually only worth what we pay for it. So it is usually best to just say “thank you” and move on and find an investor who believes in you and your company.
The second path is only to be taken after exhaustive and extensive fundraising attempts result in a consistent drumbeat of some combination of investor apathy and the “too early” dismissal.
Exhaustive and extensive fundraising attempts can be defined as approaching more than 50 qualified parties – as in prospective investors that are sophisticated, have demonstrated an interest in the industry / market, actually have money and risk tolerance to invest, and have reviewed the deal in good faith…
…well, at this volume of rejection, and with a lot of it being some form of the “too early” objection, then it is a clear sign that hard and honest conversations are needed about the real problems with the business.
As in, its market opportunity is not that exciting. Or it’s flooded with talented, resource-rich competitors.
Or the business model – most specifically the ratio of customer acquisition cost to long-term customer value – just isn’t that interesting.
Or the entrepreneur just doesn’t have enough of the “right stuff.”
The truth is that very often these are not solvable problems, and the best path is for the business to be sold, or as a buyer is unable to be found – shut down.
But in very many cases, there are viable solutions to these problems.
Like a strategic business pivot.
Or leadership development for key executives.
So, the next time the words “too early” are heard in an investment discussion, it is best to both ignore them and take them very seriously at the same time.
And either way, respond to them as only a true entrepreneur can.
Creatively, persistently, and honestly.
Because it is never too early to do the right and hard things for a business.
Looking to Raise Money or Sell Your Businesses in these Toughening Markets?
With it, you will be able to assess your company’s likelihood, at varying prices and valuations, of raising capital and / or attracting a buyer.