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Unless you are professional fundraiser of venture capital (which most would rather not be), two words can seem both daunting and mystifying: term sheet.

You’ve built a great company:  a product your customers love, revenue doubling year-over-year, a growing employee base, and a market position that most would envy. But you want more. You don’t want to be that nice little company that people find inspirational. You want to be the company that vendors are petrified to face and people would give their right arm to work for. It’s time to kick things up a notch now that you have made the decision to raise institutional capital.

You know a guy your wife went to high school with that is now a financial adviser and plays an investment banker on TV. He helps you put together a killer PowerPoint: hockey stick growth charts, a table showing the $10 billion market opportunity, and flow charts that would make a McKinsey consultant jealous. You set up meetings with a bunch of VCs. They all eat the story up but only two or three of them seem to have a clue what their talking about. You tell the others to bug off and when you finally sit down to your desk, there it is in your inbox: the term sheet.

Now none of this is rocket science, though laywers and bankers will be the first to tell you just the opposite. It comes down to a few key components that are critical to pay attention to. I thought I would write a little about each of these in an effort to provide some air cover before you head into battle.

Over the next few weeks, I will write about:

1. Types of Securities and the Associated Bells-and-Whistles
2. Provisions, Conversions, and Redemptions
3. The Stock Purchase and Investor Rights Agreements
4. The ROFR and Voting Agreement

The hope here is to take some of the mystery out of the term sheet and set you up for constructive and swift negotiations.

Below I outline the basic data most often needed before even beginning term sheet negotiations:

1. Financial statements: Be prepared to compile financial statements from the last few years, including most recent quarters and projections. These should include a comprehensive P&L with costs broken out by functional area, a recent balance sheet and a recent statement of cash flows. Investors like to have a sense for the financial picture before throwing around pre-money valuations.
2. Sales data: It is good to have at the ready data around salesperson productivity, quotas, bookings, sales methodologies, sales process, channel contribution, and more. This may seem a bit noisome for relatively early stage discussions, however a quality go-to-market strategy and distribution model are what distinguish great businesses from good businesses.
3. Capitalization table: Prior to thinking about the size of the option pool or anti-dilution mechanisms, venture capital firms are going to want to understand the make-up of the current ownership. What do the founders own? What do angels own? What do other VCs own? What warrants are outstanding? Without this, there is no deal.
4. High-level product vision and road map: This is another item that may seem over-the-top for pre-LOI purposes, but it can be critical for technically savvy investors to wrap their head around the product and its competitive advantage. What’s the next bit of functionality? Which OS is the product supporting next? Without this information, there is a gap in the investment thesis that is untenable.
5. Market data: An investor will often request data from reputable market sources to help inform their perspective on a company. Most will want to know what Gartner or 451 Group thinks of Company X and will want help in coming to terms with the addressable market size.

Lastly, depending on the investor’s familiarity with the Company, sector or technology, he or she may request to speak with a few current customers prior to inking an LOI. This serves as a litmus test for the VC before diving headstrong into a due diligence period.

While some venture investors like to look at new subscribers/active users/daily logins, the “consumer” market scares the hell out of me. Call it naïve or out-of-touch, but while I respect my colleagues going all-in on the trend, it isn’t for me.

No… I love companies that began around a pain point: something in response to terrible service, overpriced upgrades, onerous contract terms, or just plain shitty products.  Businesses aren’t running as well as they could be and someone needed to solve it.

Big Boy Software is what one of my colleagues calls it. This is the stuff that makes the world run. This is the company managing petabytes of data for Wall Street, or the business helping service providers get paid, or the Fortune 500 managing millions of documents. This is no frou-frou puppy game (no offense OMGPOP). This is the stuff of 12-month sales cycles, six-month implementations, and seven-digit contracts.

With the market focusing on anything but the enterprise, opportunity abounds. We at OpenView Venture Partners have already found a number of companies that are coming and selling successfully to businesses that need a solution not to boost their Klout, but increase their bottom-line. As Marc Andreessen, founding partner at the venture capital firm Andreessen Horowitz, puts it in his recent article for the Wall Street Journal, “Companies in every industry need to assume that a software revolution is coming.”

Take Prognosis. The Houston-based software company is selling an enterprise solution to rural hospitals across the country. The founders saw an opportunity to come into a market being led by companies from the 1980s that are based on MUMPS, and eat-their-lunch with a web-native solution and straight forward contracts.

Or take AtTask. The Salt Lake City-based business saw an opportunity in a market rife with legacy, on-premise products that were taking up space. With its on-demand solution, AtTask is able provide valuable business intelligence and resource management to companies like Apple and GE with an engaging user interface and lower TCO.

These are just a few of the many companies in our portfolio that are changing the dynamics of their respective marketplaces, by making use of better technology, focusing on more intuitive design, and helping businesses just plain run.

Fast forward to 2011, and the brick phone has long since been replaced several times over. It is more likely to be found in an antique store than an office. 

The mobile world has gone from a nascent nice-to-have to a rapidly maturing need-to-have. We have evolved from the brick/car phone to the Nokia blocks to the Razor to sleek smartphones and tablets. These devices are on the edge of global ubiquity as the price of hardware components continues to decrease, wireless providers look for incremental revenue streams, and platforms such as Android begin to be make the offerings very affordable. This expanding world presence will have a ripple effect across numerous industries.

There are four areas in particular that appear to be on the brink of a mobile device revolution:

Healthcare – Mobile is taking the healthcare industry by storm. I was at HIMSS 2011 last week, the largest healthcare technology conference held annually, and mobile health or mHealth was front and center. The use cases are many. The home health and telehealth industries are taking advantage of user friendly form-factors like the iPhone. Management of diabetes, stroke patients and the elderly can now be handled through robust mobile apps that enable patients to take part in their daily health regimen. Physicians are using iPad-native EMRs to engage with patients at the bedside. Nurses are able to record care administration at the point-of-care allowing for more accurate coding and charge capture. This is only the beginning of the role of mobile in the healthcare arena as these technologies will inevitably spread from the early adopters to the greater community.

e-Commerce and Marketing: Mobile commerce and marketing across devices is in the back of the slingshot: pulled back and when released in the next year will take off like a bat out of hell. Nearly every Fortune 500 company today is looking at how best to leverage a mobile strategy to increase their competitive positioning. 78 percent of smartphone users have made a purchase on their mobile device in the last year. Corporations are expected to spend billions on developing apps over the next 5 years to take advantage of this rising tide. Any company’s content marketing strategy will be heavily influenced by mobile in the years to come.

Education: Three years ago, using remote control-esque clickers in class was advanced. Today, institutions are redesigning curriculum around tablets. Surveys on smartphones enable live participation and feedback in lectures. iPads are the new FiveStar notebook. Learning management systems (a la Blackboard) have no choice but to include several mobile interfaces in order to be adopted.

Government: As the recent events in the EMEA region show, the use of mobile devices is having a transformational impact on how citizens effect change in government. Mobile-enabled platforms such as Twitter and Facebook have combined with widely available news outlets to allow citizen participation/awareness to spread like a wildfire. As the availability of mobile devices increases in the developing world, this effect will grow exponentially. 

As an associate at OpenView Venture Partners, a Boston-based venture capital firm, I continue to see interesting mobile software offerings pop up across these verticals. The world is truly in a transition and we are excited to be a part of it.

As a firm, we are starting to see this trend emerge among a number of sub-sectors across the healthcare spectrum. We invested in Kareo in September, a web-based practice management system that employs an intuitive user interface and robust claims processing capabilities to allow physicians/healthcare providers to easily receive payment. Kareo is coming in and replacing on-premise solutions from the ’90s that lacked integration capabilities and flexibility.

As venture capital investors with a focus on competitive positioning, these types of trends are especially compelling. What other sub-sectors in healthcare IT do you see undergoing the same type of change?