There are more billion dollar "unicorn" tech companies than ever before, and as such, there are more startups raising angel funding with dreams to become the next unicorn than ever before.
But what does it really take to get funding from angels?
At a previous Founder Showcase event, Naval Ravikant shared his experience as the Co-Founder of AngelList and defined the five key components of a "fundable startup." The five components, according to Naval, are (1) Doing one thing exceptional, (2) Traction, (3) Team, (4) Product, and (5) Social Proof.
See the fun infographic below, and a more thorough explanation of each component at the bottom of this post.
The 5 Key Components to a "Fundable" Company
1. Do one thing exceptionally
According to Naval, the most important thing to understand is that investors are trying to find exceptional outcomes, so they are looking for something exceptional about your company. As Naval puts it,
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 exceptional. As a startup you have to be exceptional in at least one regard.
2. Generate Traction
Traction is the holy grail, and traction trumps everything.
What signifies traction will be different for every type of business, but a good benchmark is to aim for 20% month over month growth on the core metric to your business.
And, if you don't have any semblance of traction, then you might want to reconsider raising funding at all. According to Naval, "all you will be doing is building a very expensive golden cage for yourself.”
3. Build an Exceptional Team
There isn't much room for non-technologists in an early-stage startup, so the ideal team has just one 'seller' and the rest 'builders'. In addition, solo founders, part-time employees, and outsourced development are all red flags.
Many startups get funding on basis of their team alone, so you can't afford to be unexceptional in this regard - according to Naval,
Recruit only the best team, and if you can’t, you’re not ready. It’s that simple.
An early-stage startup should have just one product, because multiple products signify a lack of focus. In addition, few investors are interested in funding a company that has not yet publicly launched its product. Because it is so cheap to launch a product today, "most angels will loath to invest before the launch because they can usually just wait."
5. Social Proof
Don’t ever cold-call or cold-email investors. Rather, you need to get introduced to them by someone they know and trust. If you are having trouble getting introductions, then consider building your advisory board or doing an "advisory round" to increase your social proof and get referrals to your target investors.
In addition, if you get a "no", then move on to the next investor. As Naval puts it, "it is much easier to pitch a new investor than convert and old one."
Copyright: dedron / 123RF Stock Photo