Proving traction and showcasing a great product are crucial to securing investment, but a startup’s name can also dramatically influence an investor’s perceptions before they’ve even set foot in the room, according to a study published last month in academic finance journal Venture Capital.
The research is based on a two-part study conducted by researchers from Stony Brook University, Drexel University, and Villanova University, who examined 131 crowdfunded projects and 1681 initial public offerings, reports Business Insider.
Easily pronounced names, such as Lyft and Uber, were found to be preferred by early and late stage investors, and tend to be offered more money through venture capital investors, crowdfunding and angel investors.
However, there is also merit in having a unique name, which can “evoke cues of unfamiliarity and create a perception of high novelty, which is valued by these pre-venture stage investors”, the study found.
Uniqueness is only a virtue with early-stage investors, however, with the study finding that since very little is known about a startup in its early stages, unique names give the impression that there is something special about the company.
In the later stages of a startup’s journey, investors looking at a company’s success care more about accurate valuation and growth metrics, so linguistics play a much smaller role in investment outcomes.
StartupSmart spoke to three uniquely-named Australian startups to find out how they chose their names, whether this affected their efforts to secure investment, and what entrepreneurs should know before settling on a brand.
David Ryan, co-founder of Corilla
For David Ryan, co-founder of technical publishing startup Corilla, coming up with the name of his startup was a case of taking inspiration from another company he admired.
“Somehow MailChimp made the world’s most boring thing — mailing list software — really fun. So I thought that’s a good influence. I remember pacing around the room and telling the team ‘we need to be fast and fun MailChimp … that’s a mailing list monkey … we need to be like… a content gorilla! Some kind of … Corilla”, he says.
His advice to other startups looking for the right name is to keep it short and simple.
“Startups can be covered by the same rules that we made up one night back in the music industry: avoid fancy and tricky combinations of letters and upper/lower case that nobody will spell right,” Ryan advises.
“Make it something that you can pronounce in a noisy bar or conference, try to avoid the naming trends (like the “er” trend in the era of flickr, tumblr, etc), pick something that looks relatively nicely weighted on a logo or business card,” he says.
Ryan also emphasises the role branding plays in the perception of a startup, noting Corilla’s distinctively simple pencil on a bright yellow background has been instrumental in promoting brand recognition since the startup launched in 2014.
“In some cultures Corilla isn’t such an easy name to say, but we’ve been delighted from day one that the quality of the overall brand has cut through,” Ryan says.
“People often come up to us at conferences and tell us that they love the logo, or walk up pointing, ‘you’re the ‘yellow pencil’!’. I’m based in San Francisco at the moment and I love seeing people with our stickers on their laptop lids. I always go up and introduce myself and it’s amazing to hear how often the brand itself caught their interest well before they knew of the product.”
Holly Cardew, founder of Pixc
Australian entrepreneur Holly Cardew has experienced success at the helm of San-Francisco based image editing startup Pixc, but says if she had her time again she would change the name of her business.
“If I could start again I would pick something you can spell phonetically,” Cardew says.
Cardew also advocates for generic or broad names like Google, which “can be anything”, rather than more specific names like Facebook, which will always be tied to its original offerings.
“You want to pick something you can expand into: Airbnb are bringing in travel, gigs, experiences that don’t really fit into ‘Airbnb'” she says.
“The most important thing is picking a name that you can move in to, that doesn’t tie you in to one thing.”
Michael Jankie, co-founder and chief executive of PoweredLocal
Michael Jankie, co-founder and chief executive of Melbourne-based social Wi-Fi startup PoweredLocal, advocates the virtues of generic names for startups, but admits that despite securing more than $500,000 in funding, the PoweredLocal name is still “one we struggle with”.
“I’m sure certain names appeal to different people, but when we named our company PoweredLocal, we did not necessarily think we would be doing just Wi-Fi, so we wanted it to be generic,” Jankie says.
“We know we have had perception problems with customers — they think we are an energy company.”
Jankie says early-stage companies need to be particularly aware of the connotations their names carry, because without previous press or traction, it’s inevitably the “first thing an investor sees when it comes across their desk”.
“Just like CVs and many other decision making requirements, VCs and investors are looking for reasons to knock something off a list to minimise their load of work,” Jankie advises.
With this in mind, Jankie advises startups should “pick a name relevant to your industry and speak to investors that are also relevant to your industry”.
“[There is]no point talking to a social enterprise fund with a company named Vulture Loans … [when] you could talk to funds that invest in commercial lending,” he says.