When you’re an early stage startup, you often have to make a choice early on about what products you’re going to offer what markets. You might have a lot of different directions that you could go in, but at some point, you have to close the doors to some and commit to others.
Sometimes—actually, a lot of times—opportunities present themselves after you’ve already started. You get lots of customer demand from an unexpected place, or business development conversations reveal an untapped part of the market. You realize there’s something there and you decide to go after it.
Unfortunately, you only gassed up the engine with enough angel capital to go after the first thing that you had set out to do—so before you can really prove out this new opportunity, you find yourself running out.
Then where are you?
You realized that your first market wasn’t as big as you thought—or maybe it still was but you just didn’t go after it as hard because the much bigger opportunity was something else. So you’re halfway to something really interesting, but don’t have killer provable results for either—but you’re quite sure you made the right strategic move.
Try fundraising based on half a pivot with a new set of investors. If your original angels can’t follow on and weren’t around to be on board with the strategy shift, then a new set of angels will probably have a hard time buying it. They might look at your recent results as a function of your inability to execute.
Sometimes folks warn against having VCs in your deal early, because they might pass later and give you a black mark. But, if you don’t have *anyone* who can follow on, you run the risk of not having anyone who can give you addition room to run just in case there was a strategy shift. Oh, and guess what: In an early stage startup there is almost always a strategy shift. I think it is to your benefit to have a set of investors who gets on board with a new strategy, sees that you’re still making good progress on it, and who can give you the extra runway to see something through that you all agreed on. That’s often going to be a problem if all you have around the table are one shot angels.
You might say “Why pivot at all” then. Why not prove out your ability to execute on one thing, nail it, and then move onto something else. Well, proving that you can win in a less interesting market isn’t really that interesting to folks for one—and two, you discount how market momentum can actually improve your chances of winning. If you try to “move to where the puck is” and you’re pivoting to a space that is much more interesting to biz dev partners, you actually increase the chances that good fortune will befall you—versus trying to innovate in a static market. (Trust me, I know what that’s like.)
So, while you’re planning out world domination, make sure you’ve got at least one deep pocket in your angel round. Whether it’s First Round or someone else is up to you, but the last thing you want to do is get caught in mid-pivot. It’s an ugly place to be.