The anatomy of a fundable startup

This post is sponsored by The Founder Institute.

As a co-founder of several companies, an angel investor in several more, and co-maintainer of two great resources for entrepreneurs — AngelList and Venture Hacks — Naval Ravikant has a unique view of the startup and investing landscape. That’s why he was asked to speak at the Founder Showcase event last week in San Francisco to almost 500 founders and investors, and he did not disappoint. In a great speech appropriately titled “The Anatomy of the Fundable Startup,” Naval broke down the 5 main qualities of an “exceptional startup”:

1. Traction
– “Traction trumps everything”
– “You want to have about 20% a month growth to look like a hot company”

2. Team
– “There’s not a lot of room for non-technologists. One seller, and the rest builders”
– “Recruit only the best. And if you can’t, you’re not ready. It’s that simple”

3. Product
– “Most angels will loath to invest before the launch.” They can usually just wait.

4. Social proof
– “It matters, but it’s a bit overrated”
– “If you have to rely on social proof to get funded (in lieu of other metrics), I question whether you have a great company on your hands”

5. Pitch/ Presentation (this is the least important aspect)

And while all these qualities are important, Naval explained, the most important thing is to understand that “investors are trying to find the exceptional outcomes, so they are looking for something exceptional about the company. Instead of trying to do everything well (traction, team, product, social proof, pitch, etc), do one thing exceptionally. As a startup you have to be exceptional in at least one regard.”

Naval’s talk is a must watch for any technology entrepreneur or angel investor. He also shares several “hacks” to raise funding (for example, “Knowing your microeconomics is music to an investor’s ears”), and signs for when to call it quits on your roadshow (“If you’re having a hard time raising money going at it 3 to 6 months in this environment, then it’s time to go back and focus on your product and team”).

See the full video of Naval’s talk at the Founder Institute website here.

The Founder Showcase event is hosted by the Founder Institute — a global network of startups and mentors that helps entrepreneurs launch meaningful and enduring technology companies. In just two years the Institute has already launched over 300 companies across 4 continents. Applications for the Summer 2011 Silicon Valley Semester, which is led by Adeo Ressi, are open until Wednesday June 22nd. If you could benefit from expert training and support to launch a technology company, apply today. Participants are not required to quit their day job.