Asymmetry of information plays a major role in negotiations, and it is often said that venture capital investments are made under extreme information asymmetry.
On one side of the table, the limited partners don't know much about the company, the VCs know a little (relatively speaking), and companies know everything. This is one reason VC investments are made in stages - it serves as an incentive to keep the company on track and a way to minimize the risk.
When it comes to funding, though, the VCs also typically have an advantage in the sense that they do a lot of deals and know the landscape of the business better than an entrepreneur, particularly a first-time entrepreneur.
TheFunded started as a site to review VCs. Like in the investment banking world, a VC's reputation is everything because he relies on repeat business. In theory, transparency in these dealings is a good thing, but the question was whether the data was actually worthwhile. As Charlie put it, TheFunded is "1/2 people with an axe to grind and 1/2 people who are already funded kissing butt". As controversial as those ratings were, TheFunded is doing something probably more controversial by building a database of term sheets.
Venture capitalists have a lot of leverage negotiating terms that help them increase ROI simply because they have a firm grasp of the market. Things like liquidity preference (how much money they get out before the founders in a sale), veto rights and other preferred stock privileges can affect the long term economics of a deal substantially.
Entrepreneurs generally rely on their attorney and contacts to help them understand the current trends in terms.
The problem with that is that while an attorney has a duty to the client, he or she is more likely to do repeat business with the VC, and thus there's no incentive to push too hard.
Matt Marshall of VentureBeat says this feature "could bring a whole new level of transparency to the cloaked world of financing deals", and it sure seems this will shake things up even more than the ratings functionality. In the long run, though, symmetry of information is a good thing for everyone.