Why the 'ability to pivot quickly' is critical for startups

Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite podcasts. In this episode of Stocks In Translation, Yahoo Finance's markets and data editor Jared Blikre, along with Yahoo Finance producer Sydnee Fried, sit down with Melissa Pegus, serial entrepreneur, early-stage investor, and non-profit board member, to discuss her experiences as an early-stage investor. "Typically founders are raising about, it used to be 12 to 18 months of runway to get them between rounds. Now that's a little closer to between 18 to 24 months of runway they're looking for. And that's effectively how much money they need to pay employees and keep the lights on and keep building. And the idea is that in that period of time, they should have achieved sort of the milestones. And there are some generally accepted milestones that your company should hit largely in terms of revenue before you go out to raise your next round from investors," Pegus explains. Pegus talks a bit about some common exit paths for companies. "Very often when companies think of exits, the most common that we talk about in the world of venture capital is when you go public, you access the public markets. Some other common exit paths that we see are through corporate acquisitions. So larger companies are buying startups, typically, the most ideal time for a startup to sell is right before their series A... They can also decide to buy out their investors and keep their company private and profitable. There are lots of different exit paths." Pegus notes the "one essential truth" she always tells founders. "I always tell founders that there's one essential truth. If you are going to embark on this journey of venture capital and accepting venture capital, when you accept money from an outside investor, you're accepting that it means that it's no longer your business. And at some point there will be a liquidity event. You will sell the business because the investors investing that money for return. So there needs to be some liquidity event for them to see the return on their investment." Pegus breaks down some of the characteristics she looks for when investing in companies. "If I take the industry focus away, and that's important because I want to make sure that I'm investing in companies where I can help... So is this a company, not only where there's great demand for the product, but we see it's growing really quickly?... So around that traction and the momentum and traction, but also market is at a really big market and growing market. But at the earliest stages, truly, there's so many different ways to slice and dice a business, but at the stage where I invest, there's often not much more to the startup than the team... So you're really taking a bet on the team and you're asking yourself, is this the best group of people I could find to be working together to solve this problem? And if yes, then how do I help them, um, become unblocked by other obstacles?" Pegus speaks about the importance of being able to pivot as a startup. "Pivoting is just a fact of life... for most startups. And the ability to pivot quickly can mean the difference between growth and sort of the end of a journey for a startup," Pegus says. Pegus explains some important aspects to successfully fundraise. "I wish it was formulaic. It's not... First and foremost, it's largely a function of your network. There are a few things that founders need to be successful. First is access to capital, access to customers, which helps them with profitability. But it's ultimately that access to community that gives them the things like the employees that they ultimately end up hiring the investors that end up joining them on the journey for their business and early beta customers who support them. So it's first that connectivity and thinking for founders thinking about how they're building their network before they need it." Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio.
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