Whether your goal as a startup is to form a standalone company that will last for generations or one that will eventually be bought out by someone else for millions of dollars, a request for information about your purchase conditions can come up any time. Whether it's a venture capitalist or a behemoth corporation that's asking, they'll likely hand over a term sheet outlining a tentative offer based on your perceived valuation and a number of other factors that go into a potential offer.

A term sheet is a relatively informal document outlining the terms and conditions of a sale, not a letter of intent (LOI) to purchase. It serves as a bulleted list of points that both parties and their attorneys can refer to while creating a formal contract or LOI, if negotiations get that far.

Startups often find themselves in negotiations with venture capitalists who require a term sheet early on in the negotiation process. "The temptation for the entrepreneur is to focus mostly on the overall valuation of the transaction," says Business Week's Tom Taulli. "But this can be fatal. Keep in mind that a term sheet has a variety of protective clauses for the VC that can significantly reduce the valuation for the entrepreneur. As a result, it's imperative to have an experienced attorney negotiate a term sheet with you."

One of the most important points of a term sheet include a company's valuation, a potential sticking point that has the potential to stall negotiations very quickly as recently happened to Facebook. A term sheet will also include information about upfront and legal fees the startup will be expected to pay, as well as details about liquidation and dividend preferences.

To get a sense of what a term sheet might look like as it relates to your company, try plugging some data into this term sheet generator. Although it's designed for informational purposes only, it provides a lot of insight into what types of details go into a term sheet and what kinds of things are typically omitted.

Flickr image courtesy of Crystal.