I'd like to emphasize Healy's coverage on the importance of milestones. Lighthouse, the fund I work for, is a little different than Atlas or other VC's, but we think long and hard about the milestones a company is trying to hit. Common milestones include a number of users (or paid users) for a Web business and Software companies typically need to have a beta release and 3 referenceable beta customers, give or take, to get to Series B. The reality is that it's Management's job to hit the milestones and that is how you are graded. When you are not hitting your milestones, the company typically requires more capital. That means more dilution for Management and while the investor is writing the next check, she is going to be asking herself tough questions about the company.
Before I go, I'd like to take a moment to thank people like Healy who share the innerworkings of their industries with everyone else. They make us all smarter, and who knows, maybe the knowledge gained from reading his post will get an entrepeneur funded.