How to Attract Major Investors

In early 2005, Microsoft's MSFT Jay Bhatti and a business school friend, venture capitalist Jaideep Singh, hit on the idea of building a people-oriented search engine. To compete against behemoths like GoogleGOOG and Yahoo!YHOO, they spoke to some 40 venture capitalists and investors to raise the needed funds for Spock.com.

It took some smooth-talking, serious number crunching and a bone-deep belief in their vision to pull it off. But about a year later, they've raised $10 million for a beta test. Here are some things they and investing experts say to keep in mind when wooing the money people:

Do Your Homework

Write up a business plan yourself. You've heard this piece of advice a lot, and there's a reason for it. It not only helps you figure out how you'll differ from the competition, it also helps you determine how much funding you'll need. More importantly, you'll know how to defend your financial request. Because, says Bhatti, investors like venture capitalists will push back and question every line item. If you're not able to explain your rationale, then investors may question your understanding of the market and your model.

Some investors will even make you project into the future. Bhatti and Singh had to figure out where their business could be in five years, from the revenue source to the acquisition cost per user. "We had to create a ridiculously complex financial model based on nothing but assumptions," says Bhatti. "I didn't even know what our first month would be once we got funding. But this all was to make the VC comfortable that we could be a huge business in five years."