This is my favorite new (well, for me at least) investor/startup term.
I used to be an investor in the fun .bomb times before I went back to Apple to create more products. Back then when a company was failing they either were closed down or went through what I called an exercise in surface tension (how many startup bricks do you have to tie together to get them to float) aka mergers.
Nowadays when a startup finds that what it set out to do isn't working they 'pivot'. Basically completely change their business, technology, idea, etc. but continue to spend their original investment money. I believe this is a good thing as long as the investor(s) still believe in the team.
This appears to me to be a symptom of the increased number of startups being invested in now at even earlier stages. Their are some special considerations that I believe should be addressed during a pivot.
1) Does the investor(s) want to continue to fund the team?
If not, they should be able to exit the relationship.
If they do, should any note or funding round be revised in some fashion?
2) If none of the investors believe in the team or new direction should the entrepreneurs continue on anyway?
This comes down to burning bridges. If the new idea succeeds then the bridge is fine. If it flops then the investors will probably not make good future references.