What is Letter of intent (LOI)?

The non-binding document an acquirer signs early in a sale that sets the proposed price, structure, and timeline, and opens exclusive due diligence.

Why does Letter of intent (LOI) matter to a founder?

The LOI is the moment your leverage peaks and then starts to fall. Before it, you can run a competitive process and bring price-up evidence to the table. After it, you are usually exclusive with one buyer whose diligence team has done fifty of these to your one, and every gap they find is a price reduction. Deals typically close 5–35% below the LOI number.

What are the common mistakes with Letter of intent (LOI)?

Treating the LOI price as a floor to negotiate up from; it is the ceiling. Signing before fixing the red flags a buyer will find: revenue recognition, missing IP assignments, customer concentration. Letting the first inbound buyer set the timetable instead of using the inbound to start a competitive process. Assuming casual conversations during diligence are off the record.

Letter of intent (LOI)

CONCEPT · LAST REVIEWED 2026-09 · SOURCED FROM 1 SESSION, SEP 2026

A letter of intent is the acquirer’s written offer: proposed price, deal structure (cash, stock, earn-out), timeline, and usually an exclusivity period during which you stop talking to other buyers. Most of it is non-binding. What it really does is open due diligence, and diligence is where the price gets decided.

Why it matters

Founders read an LOI as a starting price. Buyers treat it as a maximum.

From the room

“The LOI is really your ceiling, not the floor. Most of us founders think, oh, we’ve got a starting price, I’m going to move it up. Deals don’t move up in price. Deals move down in price. In general they move down five to thirty-five percent of the LOI.”

— Three-exit founder who now runs an exit-readiness advisory · session, Sep 2026

The mechanism is diligence: the buyer’s team looks at revenue recognition, the product roadmap against the hiring plan, customer contracts, IP assignments, and every gap becomes a reduction. The advisor’s own first exit went so badly in diligence that he walked out and sold to a different buyer. The work that protects the price happens before the LOI: grade your readiness red, amber, green and clear the list first.

The mirror image holds too. If you have evidence that raises the price (in one of his deals, the buyer’s own junior staffer let slip that every customer using the product halved the buyer’s sales cycle), bring it to the LOI negotiation. There is no such thing as a casual conversation during a deal.

Where founders get it wrong

Treating the LOI price as a floor to negotiate up from.
Signing before fixing the red flags a buyer will find.
Letting the first inbound buyer set the timetable instead of using the inbound to launch a competitive process (one company in the session sold at 2.2x its initial LOI by doing exactly that).
Assuming diligence dinners are off the record.

Numbers from the room

Figure	Value
Post-LOI price movement	Down 5–35%
Competitive-process payoff cited	2.2x the initial LOI

Go deeper

Running the exit process covers the readiness pillars to clear before the LOI and how to run the competitive process.
Related concepts: Earn-out, Quality of earnings, Customer concentration.