Selling Your Startup

11Getting to a Letter of Intent (LOI)

You've done the prep work, and you've presented and met with potential buyers. Now, you hope to field letters of intent (LOIs) from interested acquirers.

A letter of intent is an important step in the right direction when you're looking to sell your company and achieve an exit. But there are a variety of misconceptions about LOIs in the M&A space. So what are the most important points of the document? What do you need to know—and do—before moving forward?

In essence, an LOI is a document expressing an interest in moving to the next stage of pursuing an acquisition of your company.

An LOI is a stronger document than an IOI (indication of interest). The IOI is more like someone raising his or her hand or cold emailing you and stating that he or she might be interested in buying your company for a rough estimate or within a rough price range. The buyer probably hasn't done much homework, but if you're interested, then the person will be interested in snooping around a little more to see if it is a match. It helps the company streamline its workload, and it'll proceed only if there is a seller already interested in making a deal at an attractive price.

An IOI may come before an LOI in startup M&A, but it is not necessarily a precursor to moving into making a deal.

An LOI is not an entity or asset purchase agreement, either. These agreements are the actual legal contract that will be used to close the transaction, spelling out all of the tiny ...