Deal Terms
Letter of Intent (LOI)
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Quick Answer
A preliminary agreement outlining the key terms of a proposed transaction — similar to a term sheet but more commonly used in M&A contexts.
What it is
A Letter of Intent (LOI) is a preliminary, typically non-binding document that outlines the key terms of a proposed acquisition or investment. In M&A, an LOI from an acquirer establishes: proposed acquisition price (or price range), deal structure (asset vs. stock purchase, cash vs. equity consideration), key conditions to closing, exclusivity period, and timeline. LOIs are non-binding on the main deal terms but typically binding on exclusivity and confidentiality. Once an LOI is signed, both parties move into formal due diligence. In venture investing, term sheets serve a similar function to LOIs. The LOI signals serious intent without the full legal commitment of a definitive acquisition agreement.
In Practice
When SaaS company DataVault received acquisition interest from Microsoft, they signed an LOI outlining a $250M purchase price, 60-day exclusivity period, and key deal structure including $200M cash plus $50M earnout based on integration milestones. The LOI specified that 15% of proceeds would go to employee retention bonuses and outlined Microsoft's commitment to maintain DataVault's product roadmap. While non-binding, this LOI provided framework for the definitive purchase agreement negotiations.
Operational context
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Why It Matters
LOIs bridge the gap between initial acquisition discussions and binding agreements, providing crucial momentum and clarity for complex transactions. They establish pricing expectations, deal timeline, and key structural elements while allowing both parties to conduct deeper due diligence. Without well-structured LOIs, many potential exits fall apart due to misaligned expectations or lack of commitment from acquiring parties during the lengthy M&A process.
VC Beast Take
The LOI phase is where most venture exits actually get won or lost, yet founders typically spend minimal time preparing for this critical juncture. The best entrepreneurs treat LOI negotiations as seriously as fundraising term sheets. Small details in LOIs — like exclusivity periods and breakup fees — can mean millions in final proceeds. Having experienced M&A counsel at this stage pays for itself many times over.
Related tools and reading
Term Family
Related concepts
Further Reading
VC Term Sheet Template & Guide: Every Clause Explained with Examples
A clause-by-clause breakdown of every standard VC term sheet provision — what each term means, what's market, what to negotiate, and the red flags that cost founders millions.
100+ Venture Capital Acronyms Every Investor and Founder Should Know
From ARR to ZBB, the complete dictionary of VC and startup acronyms with plain-English definitions. Bookmark this — you'll reference it constantly.
Comparisons
Frequently Asked Questions
What is Letter of Intent (LOI) in venture capital?
A Letter of Intent (LOI) is a preliminary, typically non-binding document that outlines the key terms of a proposed acquisition or investment. In M&A, an LOI from an acquirer establishes: proposed acquisition price (or price range), deal structure (asset vs. stock purchase, cash vs.
Why is Letter of Intent (LOI) important for startups?
Understanding Letter of Intent (LOI) is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Letter of Intent (LOI) fall under in VC?
Letter of Intent (LOI) falls under the deal-terms category in venture capital. This area covers concepts related to the financial and legal terms that define investment agreements.
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