Using data to pick the optimal startup name?

February 7, 2014: 5:04 PM ET

When analyzing data, be careful not to confuse correlation for causation.

By Tomasz Tunguz

FORTUNE -- Naming your startup can be one of the hardest things to do when starting a company. Each founder must agree. The domain must be available to buy. Lastly, and perhaps most importantly, investors need to like it because the first letter of startup's name has meaningful impact on how easily the company will be able to raise money.

Whatever you do, don't pick a name that starts with the letter J. Or K. Or Q. Instead, favor names beginning with T, O and A.

Below is a chart showing the share of capital raised by startups broken down by the first letter of their names for Series A rounds of IT companies in 2013. The data is normalized for the number of startups with each letter-name. Startups with T-names raise 100% more capital during the Series A than the average startup. Startups with the letter A garner 50% larger investments. On the other hand, founders who mistakenly chose J-words raised 50% less capital in 2013, quite a disadvantage in the market.

The data clearly proves picking the right letter for a startup's name is correlated to the amount of money the company will raise in its Series A.

But here's the trick: the relationship isn't causal, just correlated. So all that advice about picking the right letter... well, it's useless.

What's in a name, after all? Looker by any other name would still analyze data elegantly (disclaimer: yes, it's one of my portfolio companies).

Thanks to @milesgrimshaw who inspired this reminder not to believe everything you read, even if there's seemingly cohoret data to support the argument.

Tomasz Tunguz (@ttunguz) is a partner with Redpoint Ventures. This post first appeared on his blog.

  • Did you learn anything useful in VC?

    Sarah Tavel left Bessemer Venture Partners last year in order to join Pinterest. Here is what she did, and didn't, learn during her time as a VC.

    By Sarah Tavel

    FORTUNE -- It's been more than a year and a half since I left Bessemer Venture Partners to join Pinterest. Since then, I've taken quite a few meetings and phone calls from junior VCs or MBAs asking about my transition from MORE

    Nov 26, 2013 8:58 AM ET
  • When angels reach too high, startups can fall

    Why startups shouldn't always take the top price from angel investors.

    FORTUNE -- Silicon Valley is living in the age of angels. And it is beginning to cause some problems.

    Here's the troublesome scenario: A young tech entrepreneur raises some angel funding to begin building his business. Maybe $100,000 or so at an entirely-reasonable valuation. It was a good experience. They return to the angel market for a bit more funding, believing MORE

    - Oct 3, 2013 12:09 PM ET
  • The future of 'demo days' in an era of general solicitation

    Startup "demo days" have been flouting the law for years. Here's how they can keep doing so, even though the laws are changing.

    FORTUNE -- Beginning on Monday, private companies will be legally permitted to "generally solicit" investors. And it may forever change startup "demo days," which have become ubiquitous in Silicon Valley and beyond.

    For decades, private issuers have been prohibited from publicly passing the hat. That's why you've never seen MORE

    - Sep 20, 2013 12:27 PM ET
  • The 'other' company founder

    What to do with the company co-founder who isn't CEO?

    By Jeff Bussgang

    FORTUNE -- I've been thinking a lot lately about the unsung hero of many startups: The other founder. A lot has been written about the founder/CEO and his growth and evolution as a company grows. But little is written about the (nearly omnipresent in my experience) co-founder -- the No. 2, behind-the-scenes partner who teams with the founder/CEO MORE

    Sep 10, 2013 1:15 PM ET
  • Capital market climate change

    What startups should do if the environment is worse than expected

    By Ben Horowitz

    "Hope that you feel this  Feel this way forever You can plan a pretty picnic But you can't predict the weather."

     --Outkast, Ms. Jackson

    FORTUNE -- If you run a startup and are currently raising money, you probably planned for a somewhat different fundraising environment than the one you find yourself in today. You probably thought that valuations would be roughly MORE

    Jul 15, 2013 2:29 PM ET
  • Bonuses are toxic at startups

    Startups should keep employee upside in equity.

    By Eric Paley

    FORTUNE -- Venture-backed startups are incredibly ambitious. A startup team comes together to try to create something highly improbable and well beyond what can reasonably be expected given the scarce resources at hand. Once financed, everyone at the startup should have a reasonable salary, but the real compensation for achieving the improbable is equity.

    Inevitably, I get into a discussion with my MORE

    May 6, 2013 2:53 PM ET
  • A 4-step guide to landing a startup job

    Aim high, seek out key networking meetings, and pick yourself a winner.

    By Jeff Bussgang

    FORTUNE -- My first time jumping into the startup world was as a freshly minted Harvard MBA in 1995. As my classmates were rushing off to high-paying, high-powered jobs on Wall Street, I joined a Series A startup with 30 employees as a product manager, making $65,000 per year - lower than my pre-MBA salary at MORE

    Apr 3, 2013 3:14 PM ET
  • When VC deals don't work out

    Not every VC deal can be a hit. And that's when the real work begins.

    By Fred Wilson

    FORTUNE -- Early stage venture capital is a lot like baseball: If you get a hit one out of every three times, you are headed to the Hall of Fame. And if I look back over my career, and also over the track records of the firms and funds I have helped manage, MORE

    Mar 28, 2013 2:34 PM ET
  • Is your company IPO ready?

    The three real keys to going public have nothing to do with $100 million in revenue.

    By Glenn Solomon

    FORTUNE -- As a junior banker at Goldman Sachs (GS) in the early 1990's, I was weaned on the conventional wisdom that growth companies were ready to go public when they reached $100 million in annualized revenue and had at least two quarters of profitability under their belts.

    The "$100 million revenue" theory MORE

    Feb 25, 2013 11:06 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.