Question 1

Is a letter of intent legally binding?

Accepted Answer

An LOI is usually mostly non-binding, but certain sections may be enforceable depending on language and jurisdiction. Common binding clauses include confidentiality, exclusivity, governing law, and sometimes cost allocation. Founders should assume enforceability risk exists and have counsel review any LOI before signing.

Question 2

What sections should a startup LOI include?

Accepted Answer

Strong LOIs usually define scope, pricing or valuation logic, timeline, responsibilities, diligence requirements, and key commercial assumptions. They should also identify whether clauses like exclusivity, confidentiality, and termination rights are binding. Clear structure reduces ambiguity and speeds negotiation of final agreements.

Question 3

How is an LOI different from a term sheet?

Accepted Answer

They are similar in purpose but used in different contexts and with different detail levels. Term sheets are common in venture financings and focus on investment terms like valuation and governance. LOIs are broader and often used in sales, partnerships, or M&A to outline commercial deal intent before final contracts.

Question 4

When should startups use an LOI in practice?

Accepted Answer

Use an LOI when both parties want to confirm deal direction before spending significant legal or operational resources. It is especially useful for enterprise pilots, strategic partnerships, and acquisition discussions where terms are complex. An LOI helps align expectations early and reduces late-stage surprises.

Question 5

What are common founder mistakes with LOIs?

Accepted Answer

Frequent mistakes include vague language, skipping legal review, accepting broad exclusivity, and treating the LOI as a guaranteed close. Founders also underestimate how much leverage can change during diligence. A precise LOI with clear assumptions protects both speed and negotiating position.

Question 6

How should founders evaluate no-shop or exclusivity terms in an LOI?

Accepted Answer

Exclusivity can be reasonable, but it should be narrow in scope and short in duration with clear milestones. Long no-shop windows can weaken leverage and consume runway if the counterparty moves slowly. Founders should tie exclusivity to concrete diligence timelines and explicit next-step commitments.

Question 7

How long should the LOI phase typically last?

Accepted Answer

Timelines vary by deal complexity, but LOI-to-final-contract windows are often measured in weeks, not many months. If timelines extend without clear progress, risk rises that priorities shift or terms are reopened. Milestone-based check-ins help determine whether to continue, renegotiate, or walk away.

Question 8

Does signing an LOI mean the deal will definitely close?

Accepted Answer

No. LOIs establish intent, not certainty, and many deals fail during diligence, legal negotiation, or internal approvals. Founders should continue scenario planning and protect downside while progressing the deal. Treat the LOI as a structured path forward, not as a completed transaction.

Letter of Intent

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Term Sheet

Due Diligence

Acquisition

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