Hustle Fund has invested in over 500 startups. And any of those are significantly different today compared to when we initially invested in them.

That's because, we invest in early-stage companies. And early stage companies are often pre-product/market fit.

Meaning there's a good chance that the founder will realize...

1. this isn't a big enough problem to solve
2. the market isn't ready for my solution
3. user adoption and/or retention isn't working
4. I don't want to work on this problem anymore

And if any one of the above happens, the company will either shut down or pivot.

Here's the question: as an investor, how do you help your portfolio companies decide if they should pivot, when they should to pivot, and what to pivot to? To figure this out, let's take a look at a Hustle Fund portfolio company that went through a pivot. And what investor Elizabeth Yin did to help them manage the transition successfully.

It all started with Standups

Hustle Fund first invested in founder Arjun Mahadevan when he was building a company called Standups. This took place during Covid, when everyone was figuring out how to work remotely and asynchronously.

Standups wanted to help teams navigate this new world. To do this, they built a video platform to help teams hold virtual "standup" meetings async. Unfortunately the company wasn't growing that quickly. This was due in large part to the fact that there was a lot of competition in the space. Plenty of other options were out there, like Loom, Vimeo, YouTube... even Detail (another HF portfolio company).

Acquiring users was a big challenge. So Arjun decided to pivot.

The billion-dollar question

Making the decision to pivot was not easy... partly because Standups had paying users. Arjun waffled between the option to pivot and the option to simply try harder to acquire more users.

This is the billion-dollar question when it comes to pivoting: if the thing you’re working on isn’t working... do you keep pushing? Give up and return the money to your investors? Or pivot. The thing is, there's not usually a clear right answer. It's really, really hard to know when to pivot.

It comes down to three big questions:

1. Do people need this product?
2. Do users love this product?
3. Are users repeat buying this product?
   
   

If the startup is acquiring new users but not retaining them, it's probably worthwhile to try and fix the retention problem before pivoting. If the startup isn't growing quickly but retention is high, it's probably worthwhile to try to solve the customer acquisition problem before pivoting. But if the startup is dealing with a user acquisition AND retention issue... it might be time to seriously consider pivoting.

Deciding what to pivot to

If a founder comes to you and wants to pivot, best-case scenario is that s/he has an insight into a big business opportunity that's become evident through her/his work with the original company. For example, a company that started out as a pilot-training platform realizes that most cities don't have airports, and pivots into an "airbnb for landing strips" platform (terrible example, but you get the idea).

In Doola's case... they had no insights. Their primary investor at Hustle Fund was Elizabeth Yin. Elizabeth asked them a question that set them on a course to create a company that has become incredibly successful. Here's what she asked them:

You as a founder are going to work on this opportunity for 10+ years. There will be a lot of hard days. You've gotta be passionate about solving this problem. So... what audience do you desperately want to help? And what problems are they facing that you're passionate about solving?

Arjun started with the audience. He knew he wanted to help founders. Then he dug into the problem sets facing that audience: the one that captured him the most was growth. Then he did a ton of customer discovery to find out what was preventing founders from achieving that growth. Ultimately Arjun discovered that many founders based internationally with successful businesses wanted to expand to the U.S. to unlock new revenue potential. This expansion would provide meaningful, potentially life-changing growth for those founders' businesses.

But while the founders were experts in their own businesses, they were not experts in the regulatory requirements of expanding to the U.S. And that's how Doola was born. Doola helps small businesses navigate the regulatory requirements of doing business in the U.S.. Things like: setting up a U.S. LLC, establishing a U.S. bank account, getting a U.S. mailing address, dealing with U.S. taxes. All the boring but critical pieces of expanding a business in the States.

And it's working. Doola is acquiring customers quickly and consistently, and is retaining them by offering a suite of services. You can learn more by reading their public-facing investor updates (yeah, they publish these). And the best part? Arjun is fired up to continue working on this problem for the long haul. In terms of pivots, this was an unqualified success.

What if they run out of money?

Let's say one of your portfolio companies raised $500k for their startup idea. And after a year of not seeing growth or retention, the founder decided to pivot. This means starting from ground zero... problem ideation, customer interviews, prototyping a solution, etc etc etc. There's a good chance that the startup will run out of money before they find their next big idea. And what happens then?

Can a startup that's in the middle of a pivot successfully fundraise? Well... probably not. Certainly there are companies that have done this successfully (Zeus Living comes to mind) but most founders will not be able to successfully raise another round mid-pivot. This is because investors don't want to see an increase in valuation without significant company growth. And raising another round at the same valuation (or lower) tends to leave investors without a much conviction in the team.

One option for the founder is to return whatever money is left to the investors, then start over from scratch. Another option is to get creative with revenue streams. The founder could get a full-time and work on the startup on nights and weekends. Or drive for Lyft. Or even consult. These earnings can be used to fund the business while the founder figures out what the new direction of the company will be.

Guiding the founder on this journey

There are a couple of ways that you, investor, can help guide your portfolio founder on their pivot journey.

1. Help them find an insight they can turn into a business

Look at the company's customer interviews. Are there insights from users that the founders may have missed? Encourage the founders to conduct "exit" interviews with customers that churn. What insights can we extract from these hard lessons?

2. Help them find what makes them tick

Ask the founder about what audience they feel most passionately about helping. Ask the founder what problem sets those users are facing. Ask the founder what their own frustrations are within those problem sets.

3. Help them understand what makes a VC-backable business

You know better than anyone how an investor things... after all, you ARE an investor. And you other investors and what gets those people excited. Before your founder goes too deeply down a rabbit hole, help them understand what kinds of businesses are "VC-backable", and which ones are better designed to be a lifestyle business.

4. Help them recover if they decide to shut down

If the founder decides to shut down the company rather than pivot, they're going to go through a big emotional rollercoaster. The best thing you can do for the founder and for yourself is to treat them with kindness. Most founders that fail the first time will try again... often with a much greater chance of success. You're more likely to get allocation into the new business if you demonstrate empathy and respect when the founder is at their lowest point.

Remember, there's always Nerdwallet

I'll leave you with a feel-good story.

Nerdwallet founder Tim Chen worked on the business for 3 years and made – at most – $2k a month that entire time. By every measurement, Tim should have pivoted. The only reason he didn't pivot was because it was a recession and he didn't have a job. And then the company IPO'd. So, you know. Anything can happen.

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