Letter of Intent (LOI)

TL;DR

A non-binding document outlining the proposed terms of a customer agreement, partnership, or acquisition before formal contracts are drafted.

A letter of intent expresses the parties' shared intent to transact and outlines the key commercial terms, but it's not legally binding (with limited exceptions like exclusivity or confidentiality clauses). LOIs are common in three contexts: large enterprise sales (the 'paper LOI' before procurement), partnership negotiations, and M&A.

In fundraising, the term sheet plays the role an LOI plays in M&A. Founders sometimes use LOIs from large customers as traction proof in fundraising decks; they're useful but discounted because they aren't binding revenue.

Worked example

An acquirer issues a non-binding LOI: $80M cash + $20M stock + $20M earnout, 60-day exclusivity, target close in 90 days. Once signed, the seller can't shop the deal — exclusivity is the buyer's leverage during diligence.

Common pitfalls

• Treating LOIs as guaranteed revenue when they're non-binding intent.
• Letting LOIs sit unsigned for too long and losing momentum.
• Failing to convert LOIs into signed contracts within a defined window.

When this shows up in a pitch deck

Customer LOIs are sometimes cited on the Traction slide; investors weight them less than signed paid pilots.

Related terms

• Term Sheet — A non-binding document outlining the principal terms of a proposed financing, used to align investor and founder before legal documents are drafted.
• No-Shop Clause — A binding term sheet provision preventing the company from soliciting or accepting competing offers for a defined window after signing.
• Due Diligence — The investigation an investor performs to verify the claims in the pitch and assess all material risks before signing a term sheet or wiring funds.
• Customer Validation — Proving that target customers will actually pay for, deploy, and renew a specific solution to the problem you discovered.
• Data Room — A secure shared folder with every document an investor needs for due diligence — financials, contracts, cap table, team info, and customer references.

Use this in your next pitch deck

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