Megan Rose Dickey summarizes Paul's five things investors look for:

1. Formidable founders (those who seem like they'll get what they want). This is the most important ingredient of the equation because investors make snap judgments about you when they meet you. Within the first few minutes, Graham says, investors typically decide if you're a winner or a loser. Once they form that opinion, it's hard to change.
2. Truth. In order to get respect and impress investors, you need to tell the truth. You also sound more confident when you're telling the truth. It's easier to convince an investor to back your company if you yourself are convinced it's worth investing in.
3. Market: Prove that you're a good bet to investors by showing a "plausible path to owning a big piece of a big market."
4. Rejection. If you've been fundraising for a while but haven't gotten anyone to invest yet, it can be even hard. Simply be candid about what made investors hesitant about you. 
5. Different: Convince investors that you're different from everyone else. Show them that you have a new approach to the problem. 

Here is Paul Graham's whole blog post: http://paulgraham.com/convince.html

The meanest thing Paul Graham ever said to a startup:

"Moments like these make me glad we invested in sixty-four startups!" Graham exclaimed. "If you want to drive off a cliff, go right ahead."