How can you negotiate with a syndicate to ensure a startup can pivot effectively?

I have funded well over 500 business plans in a four decade career and few have gone exactly as planned. The key is to identify the need to change quickly and then provide well articulated and concise reasons the pivot is necessary coupled with the risks associated with not making the change as well as the risks of making the change. Quick, concise and reasoned will be the most effective path to getting the change desired in my experience.

I can speak from the investor’s point of view, having been in that role while debating pivots. While having “data and evidence” is important, it’s not always possible. The lack of data (clients, usage, revenue) is often the problem. Startups pivoting know what they’re leaving, not what they’re committing to. Hopefully, they’ve learned some lessons along the way, like talking to prospects before engaging too many resources.

It honestly only boils down to transparent and truthful communication. It doesn't matter if your investor is a syndicate, angel, or an institutional fund (VC). Make clear what your assumptions are for the pivot, listen to your partner (investor) who potentially has seen something similar in the past, and find an amicable solution together. The more validated data points a founder has to back up their claim for a pivot, the better it is and the more likely it is that they will maintain a good relationship with their investor.

A syndicate is typically consisting of a group of investors who can have varied opinions and interests, making the negotiation process more complex. Here are some ideas: 1) Open and Transparent Communication: Clearly communicate the reasons behind the pivot, including market research, customer feedback, and any other data that supports the need for a change in direction. Transparency builds trust and understanding. 2) Demonstrate Flexibility and Resilience: Show that your startup is adaptable and resilient. Investors are more likely to support a pivot if they see a team that can handle change effectively. 3) Outline the Pivot Plan: Present a detailed plan for the pivot, including objectives, strategies, timelines, and expected outcomes.

Pivot and leverage go hand in hand. Your biggest angry creditor can become your most loyal investor. Offer a shareholding position in your company with the commitment to co-develop a commercial service they can offer all of their clients and new prospects. The start up becomes a new business model for the creditor.

while the post is for a syndicate, as a founder hopefully you have an investor with whom you have built a relationship - who then potentially can be a sponsor for you if this situation turns up. Communicating, sharing updates, seeking assistance, showing execution, outcomes and involving could well be some aspects that lead to "getting people on the table onboard the goals". If the situation - external or approach internal to the execution demands a change then its useful to reason out why the new approach could be better than continuing on the old path. Swiftly is better, if some aspects of the current can be leveraged (thereby repurposing the resources) helps in getting the context setting of the so called pivot endorsed for a bridge

When raising from a group, make sure your term sheet allows flexibility to change course if needed. A solid syndicate will support adaption to help the business sustain long run success.

Factor in the possibility of a change in strategic direction from the outset. Negotiating a pivot starts well before you even recognize the need for it. Your term sheets, especially when you have a syndicate on board as opposed to a couple of closely involved investors, should be drafted well enough to allow you that leeway.

The most important benefit a founder should highlight to justify the pivot is how this pivot generates a more valuable company. Are you able to solve the problem more sufficiently? Have you discovered a market niche that has more potential? And so on.

If you need to secure additional funding for the pivot, be prepared for a lower valuation (especially if you need to start from scratch). This is a hard reality that founders sometimes don't want to accept, but your investors backed your initial idea and your initial promise (besides your team).

Constant communication, collaboration, and trust do not start with the pivot, but with the founding of the company. If a positive team culture is built from a get go, the pivot is just a part of a business cycle; the syndicate understands it. Unfortunately, the pivot is often postponed. The syndicate is more sensitive to this postponement than to the pivot itself.

Build trusted advisors to help weigh pivot options without permission, their guidance can address investor concerns and get everyone aligned on new goals.

A syndicate is a marriage of convenience. Agendas will always differ but they are kept in check through common goals and good. The best way to negotiate with a syndicate is meeting up and asking too many questions. Listening is the key. Also if possible meeting syndicate members individually / their vendors / customers / stake holders will give you insights on how you can derive higher value for your proposal / project from the syndicate.

Pivoting is more than a plan for startups because the world changes constantly. It keeps you imaginative and strong. Venture capitalists must guide this process and foster a culture of transformation. Remember that a successful pivot goes beyond direction. Ensuring everyone shares goals and interests is also important. Together with our syndicate partners and co-investors, we can convert issues into opportunities and help the startup develop and change using our knowledge and resources. Let's encourage working together and change because, in a changing world, unity and a single objective will make us successful. Or I can say, unite, adapt, and thrive – that will be our path to success.

Improved market fit: The pivot may allow the startup to address a larger or more lucrative market segment. Stronger competitive advantage: The pivot may give the startup a unique selling proposition or enable it to compete more effectively against established players. Accelerated growth: The pivot may lead to faster revenue growth, customer acquisition, or market share gains. Enhanced financial performance: The pivot may improve profitability, reduce expenses, or increase cash flow.