How The Name Of Your Startup Could Affect Your Funding
Has it ever crossed your mind that your startup's name could affect how much investor-funding you receive? According to a recent study, such a correlation exists.
The study was conducted by duo researchers: Haemin Dennis Park from Drexel University and Pankaj Patel from Villanova University. In the study, they reviewed 131 crowd-funded projects in the first segment before analysing 1681 IPOs in the second. Overall, their main finding was that names with varying degrees of fluency and uniqueness have different appeal to early and late stage investors.
Need help finding the right name for your startup? Get in touch with one of startup lawyers who could help you find the most suitable startup name and the various forms of name protection available.
Simple names that are easily pronounced like Uber and Canva are preferred by all investors in that they exhibit simplicity which translates to their impression of the business overall. Names that invite you to a game of Daily Jumble tend to bring confusion and automatically lead investors to question whether you really understand your business. Therefore good advice is to find a name that is short, sweet and appealing to the eye.
Early-stage investors love unique names. They brew an aura of novelty and specialness that sparks curiosity. Given that startups that they deal with are all in the idea phase and thus bring little information that allows for an accurate numerical valuation, the startup name plays a major role in shaping investor impressions.
That said, do not expect that a unique name is enough as nomenclature plays virtually no role to late-stage consideration, as investors by then would only have concern on quantitative startup valuation.
There are also other legal considerations that need to be taken into account such as business name and trademark registration as well as technical considerations like SEO. We’ve have discussed this in our previous segment ‘How to check if a business name is available?’ and ‘How to use an Australian Trade Mark Search?’
The study used some case examples to illustrate this trend.
- Xobni in 2013 was sold to Yahoo for $60 million, only to be shut down the next year.
- Bawte, a customer engagement platform startup received $220,000 as its first funding round was closed down years later.
- Oooooc, a startup that aimed to be ‘the eBay of contents and services’ received early-investor funding only to be shut down due to insufficient funding later on.
The study has brought some interesting insight that could very well inform the startup community. When you come up with a startup name, it is important to consider simplicity together with uniqueness as it will affect investor perceptions. Of course, this is not a hard-rule and there are exceptions. However overall, it is good to keep this in mind when you start out a new business. If this applies to you, it is always recommended that you get in touch with one of our startup lawyers.
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Tony is a legal Intern at Lawpath who is working with the contents team to provide legal insight for SMEs. With an interest in contract and business law he is currently completing his Finance and Law degree at the University of New South Wales.