Early-stage describes the period in a startup's life before it has significant revenue or clear product-market fit, roughly the stretch covered by pre-seed and seed rounds. It's a description of where a company is, not a strict rule, so different investors draw the line in slightly different places. The common thread is that the company is still testing its product and its market rather than scaling something already proven.
At this stage, a company usually doesn't have the financial history to be judged the way a later-stage business would. Investors instead weigh the team, the size of the opportunity, and whatever traction the company can already show, however small. Early-stage rounds are also where family and friends, angel investors and specialist pre-seed funds tend to be most active, since they're the investors most willing to back a team before there's much data to point to.
The label also matters for tax reasons. Early-stage companies are typically the ones that qualify for SEIS or EIS relief, since both schemes are built around backing very young UK businesses. That's one of the reasons early-stage investing looks different from investing at later stages, both in how a round is priced and in who's willing to take the risk.