A letter of intent (LOI) puts a handshake in writing. In startup life, LOIs appear in two main places: acquisition offers (the buyer's LOI kicks off the M&A process) and enterprise sales (a customer's LOI signals purchase intent — useful fundraising evidence before contracts close).
What an acquisition LOI contains
- Price and structure — headline value, cash vs stock mix, treatment of options
- Exclusivity ("no-shop") — typically 30–90 days during which you cannot solicit other buyers; usually one of the few binding provisions
- Key conditions — diligence scope, retention packages for founders and key employees, escrow/holdback expectations
- Timeline — target dates for diligence and definitive agreements
Binding vs non-binding
The economic terms of an LOI are almost always non-binding — the buyer can renegotiate or walk after diligence. Exclusivity, confidentiality, and expense provisions are usually binding. This asymmetry matters: once you sign, your leverage drops because competing bidders are locked out while the buyer digs into your business.
Negotiating tips for founders
1. Negotiate price and structure before signing — post-LOI leverage only decreases; "we'll fix it in the definitive docs" rarely favors sellers
2. Shorten exclusivity — 30–45 days is defensible; 90 keeps you hostage
3. Pin down retention and escrow terms early — these routinely shrink founder proceeds by double-digit percentages
4. Run a process first — LOIs improve dramatically when the buyer knows others are bidding
LOI vs term sheet
They serve the same function in different transactions: term sheets precede investments; LOIs precede acquisitions and major commercial deals. Both convert momentum into paper without full legal cost.