Today, having an amazing product is not enough to get funds from other companies. A study published in the peer-reviewed academic journal Venture Capital has found that the name of a company – a startup – is not sufficient to get investments. The name of the startup can affect how a company is perceived by investors.
Why does the name of the startup matter?
The names that are easily pronounced like Lyft, Uber, etc. are more preferred by late or early stage investors in comparison to names which are difficult to pronounce. The investors – both late and early stage – including angel investors, crowd funders, IPO investors or VCs tend to invest more and offer more money to companies having simpler names.
In addition to this, the companies which have a unique name tend to get more investors, mostly early-stage investors. According to the study, unique names make the investors think that there is something special about the company because very little is known about the company in its early stages. The study further says that complex names “evoke cues of unfamiliarity and create a perception of high novelty, which is valued by these pre-venture stage investors.” However, one should be very careful while giving their company a unique name because if the company is not able to pass the same impression, the investors tend to get uncomfortable.
Take an example from companies like Xobni, which is now shut down. Xobni was bought for $60 million in 2013 by Yahoo and it was closed down only a year later. Also, there are other companies like Oooooc, and Bawte. The findings were from researchers in the business schools at Villanova University, Stony Brook University, and Drexel University. These universities conducted a two-part study that analyzed how names affect funding. The researchers looked at 131 crowd-funded projects in the first part and later in the second study, they analyzed 1681 IPOs.
Snap looks for information security and cryptography staff
Snap hired Laurent Balmelli in early 2017. Balmellli is an engineer who co-founded Strong.Codes. According to a person familiar with the matter, the company has quietly acquired the team behind the startup Strong.Codes. The Swiss startup is the maker of tools, which obscure software code and make it more difficult for rivals to copy.
The new hires will continue to work in Switzerland but the Swiss startup Strong.Codes has since closed. The company Snap has placed ads as well to hire cryptographers and information security experts in Switzerland. Also, the startup has been increasing its European presence slowly. During his first earnings conference call in May, Evan Spiegel – the Chief Executive Officer of Snapchat – said, “If you want to be a creative company, you have got to be comfortable with and enjoy the fact that people copy your products if you make great stuff.” He added, “Just because Yahoo! has a search box doesn’t mean they’re Google.”