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Company logos may not foretell a venture’s profitability, but they could help garner backing on equity crowdfunding platforms, especially if investors perceive them as complex, new research suggests.
Previous studies have indicated that cues strongly associated with a startup venture’s potential success – signals such as patent ownership, the size of the equity raise and the founders’ education and network – influence crowdfunding investors.
Now a research team from Canada, France and the UK suggests that the company logo, while a more tenuous visual cue, can sway crowdfunding backers’ investment decisions as well.
Company logos pervade crowdfunding platforms, but little is known about the effects of such visual cues on investor behavior, they write.
The team, after conducting a survey, a field study and an experiment, report that backers appear to interpret logo design complexity as a signal of a venture’s innovativeness, and invest more in companies with more complex logos.
They presented their findings in an article, “What’s in a logo? The Impact of complex visual cues in equity crowdfunding,” in the January 2019 edition of the Journal of Business Venturing.
The authors say they found support for their idea that crowdfunding investors process visual cues automatically as a mental shortcut to help form their thoughts on early-stage entrepreneurial ventures – with more complex logos creating more favorable perceptions and drawing more funds.
“Increasing logo complexity can increase the amount of funds invested in ventures,” they conclude.
Investors may see more complex logos as a sign of innovativeness because the images are more difficult to process, “and thus, feel less familiar and more unique, original, and novel to backers,” according to the research by Ammara Mahmoud of Wilfrid Laurier University in Canada, Jonathan Luffarelli of France’s Montpellier Business School and Mudra Mukesh of the University of Westminster in London.
One study approach used field data from a top equity crowdfunding platform to show logo complexity can boost funds invested in a venture. Based on the results, the researchers estimate that a one-unit increase in logo complexity ratings leads to an 8 percent increase in investment amount.
“This effect is comparable in magnitude to the effect of (stronger) cues such as venture team size and number of previous pledges,” they write.
The researchers also surveyed 2,630 people recruited on crowdsourcing platform Amazon Mechanical Turk to rate the logos of 174 ventures raising capital on two equity crowdfunding sites. Each respondent rated two randomly chosen logos, with half of the participants asked to rate a venture on perceived innovatiness and the other half asked to rate logo complexity.
The results show that “logo complexity was positively associated with perceived venture innovativeness.”
A third study involving experienced crowdfunding investors further supported the hypotheses, they write.
The team says their work builds on other research showing that venture business plans containing images attract more positive evaluations than plans without images. The findings also support the view that backers value innovation, they write.
The team believes their study is the first to explore the effect of logo design on entrepreneurial venture funding.
December 27, 2018 at 01:00AM
Forbes – Entrepreneurs