Talking to Investors about Pivots

We invest in really early stage companies here at Precursor, many of which don't yet have product, market fit, and might not even have product. So when we're making the decision to invest, we're investing both in the quality of you, the founder, and the initial idea. But we know that pivots are a part of life for early stage companies, and we go into all these investments thinking that the original idea is going to work. But with knowledge that, as you, the founder, learn more about the opportunity you're pursuing, you might conclude that a pivot is necessary. One thing that happens when you pivot is you have to find a way to communicate the pivot to your investors in a way that will help them understand the company's new direction. In my experience, there are a couple of things that you need to get right with this conversation. As a founder, I think it's important for you to understand as a founder that there are, generally speaking, two dimensions that most investors use when investing in the early stage. It's how excited am I about the person and how excited am I about the idea? I found in the past that the kind of investor who's most excited about you as a person will be generally more tolerant of pivots and understand that the thing you're pursuing is going to be different than what they originally signed up for. And because they were fundamentally excited about you as a person, the pivot tends to be less jarring or traumatic. On the other hand, I find investors who fall in love with the idea sometimes can struggle when you come to them and tell them that you're pivoting, because a big part of their excitement and enthusiasm for making the investment was not just you, but it was also the idea and what that idea represented. And when you come to them and tell them you're not going to pursue that anymore, it causes them to have to revisit the logic of the investment in the first place. And that can be hard for some people to reconcile. And so I would say most companies, your investor base is generally a mix of people who are really enthusiastic about you and people who are really enthusiastic about the idea. So when you're trying to communicate the logic for a pivot, there's a couple things I think you need to get right in the conversation. First and foremost, explain to your investors why you're pivoting. Is this in response to some new technology that you're more excited about? Is there something about the original idea that you've discovered makes it unworkable, or is there something else? I think it's really important to make the pivot feel like it's a proactive decision as opposed to just a reactive response to some new piece of information. Or worst of all, that you're not pivoting, you're in fact flailing and have lost all direction. Second, it's important to understand how big of a pivot are you making and asking your investors to sign up for if it's a small pivot, hey, you know we're going to build the same product, but we're going to build it for the lower end of the market instead of the high end of the market. That's pretty simple. If you're pivoting into a totally different market with a totally different construct, then you might find that investors have a hard time understanding the logical leap from A to B, and you might need to spend more time getting them up to speed on why you're making this change. The last piece is what does this pivot mean for your fundraising? Is this something you can afford to finance with the current dollars, or are you going to need to go fundraise in the short term in order to power this pivot? In the end, just know that not every investor might be enthusiastic about your pivot. Some might have preferred the old idea, some might be indifferent about which idea you pursue, but not be excited about the new thing you're proposing. Just know that it's your job to be an effective communicator, even if all of your investors are not as excited about the new direction as you are.