When you get a term sheet from a potential investor, the first thing you should do is read all the way through it, so you have a big picture of what the deal looks like from the investors perspective. Term sheets contain a lot of shorthand and legal terms-things like "standard representation" or "1x, non-participating"-so you shouldn't expect to understand everything on the first pass. Make notes about things you don't understand so you can go over them with your lawyer.

Take the investor's temperature. The first term sheet isn't necessarily the final deal, and sophisticated investors will expect you to push back on some terms, especially if you're getting interest from more than one investor. But the term sheet tells you a lot about what the investors think about your company and how interested they are in the deal. Try to figure out what terms are subject to negotiation, and what you can make as a counteroffer.

Keep an eye out for deal killers. Some terms basically tell you that the investors aren't that into you. Very harsh terms - e.g., cumulative dividends, a conversion multiple, overly aggressive control provisions (more on these later) - are a red flag. They signal that the investors don't take your company seriously or think you don't know what you're doing. More of these deal killers are included in the sections below, so stay on the look out. Your lawyer should also be able to tell you if the term sheet has terms that make a deal impossible.

The National Venture Capital Association publishes a model term sheet every year. It's created by a group of the best-and-brightest VC lawyers in the country, and is the industry-standard starting point for term sheets. Look at it while you go through this play to see the terms in their natural habitat.