Think of a Letter of Intent (LOI) as the starting pistol for your next business venture. Once it fires, the race to close the acquisition quickly and smoothly is officially on.
While an LOI generally isn't legally binding, it is the ultimate proof that you are a serious buyer. In the fast-paced world of acquisitions, hesitation costs deals. If you wait too long to send one, you risk losing an incredible startup to a faster entrepreneur.
Because it sets the tone for the entire deal, drafting an LOI can feel intimidating if you’ve never done it before. It needs to strike a careful balance: adhering to basic legal principles, clearly defining your expectations, and remaining attractive enough that the founder actually wants to sign it.
Here is everything you need to know to write a winning LOI—or you can skip straight to our free template below.
What is the Real Purpose of an LOI?
At its core, an LOI is a formal offer to buy a startup through Obrinders. It’s as simple as that.
While the letter doesn't lock you into the purchase, it establishes the groundwork for the final contract. If a founder likes your terms, expect them to hold you to those expectations. Trying to drastically alter the deal later without a valid reason (like discovering hidden liabilities during due diligence) is a quick way to make the deal collapse and ruin your credibility.
Remember, almost everything in an LOI is open for discussion. Don't be shocked if a seller counters with alternative terms—that is just part of the negotiation process. Your main goal is to make a stellar first impression, so ensure every term you propose is backed by good faith.
Step-by-Step: How to Write an LOI
Before You Send It: Always have a qualified acquisition lawyer review your LOI draft before sending it to a founder. While the document as a whole is usually non-binding, specific clauses carry legal weight. Every variable must be precise, your grammar flawless, and your expectations grounded in reality.
Here are the 10 essential elements your LOI should include:
1. Address It to the Correct Legal Entity
You need to address the LOI to the exact person, people, or corporate entity that holds the legal right to sell the business. Does a co-founder own a majority stake? Is the startup a subsidiary of another parent company? For smaller micro-SaaS deals, this is usually straightforward, but always double-check that you are negotiating with the actual decision-maker.
2. Consider a "Good Faith" Provision
Good faith covenants are standard in binding contracts. You might think they are unnecessary in a non-binding LOI, but because certain sections (like exclusivity) are legally enforceable, a good faith provision is highly valuable. It ensures both parties act honestly, preventing unethical behavior like using negotiations just to steal trade secrets.
3. Detail the Included Assets and Liabilities
Most digital and SaaS acquisitions are structured as asset purchases rather than stock purchases. This means you are buying specific parts of the business while leaving others behind. Clearly outline exactly what assets (source code, domains, customer lists) and liabilities you are taking over to avoid messy misunderstandings later.
4. Specify the Excluded Assets and Liabilities
Just as important as what you are buying is what you aren't. Explicitly state which assets and liabilities are staying with the seller. If you aren't entirely sure how to phrase these exclusions, lean on your lawyer's expertise to protect yourself.
5. State the Purchase Price
The final purchase price isn't set in stone until both parties sign the definitive Purchase Agreement. However, your LOI needs to state a clear, fair number that reflects the startup's true value and catches the founder's attention. You should also mention how outstanding debts or working capital adjustments might impact this final figure.
6. Outline the Payment Terms
How do you plan to fund the deal? If you are offering a 50% upfront payment with the remaining balance spread across 12 monthly installments, put that directly into the LOI. This is also where you define any earn-out structures, performance metrics, or growth milestones required for the seller to unlock future payouts.
7. Include Key Assumptions and Conditions
What needs to happen for this deal to cross the finish line? List your contingencies here. Standard conditions include the successful completion of technical and financial due diligence, the signing of non-compete agreements, escrow setups, or the temporary retention of core staff members to assist with the transition.
8. Define the Exclusivity Period
To prevent the seller from using your offer to spark a bidding war with other buyers, include an exclusivity clause. This binds the founder to negotiate solely with you for a set window of time (e.g., 30 to 45 days). While this heavily favors you, a founder might push back if they feel your valuation is too low. Expect this timeline to be a key point of negotiation.
9. Set an Expiration Date for the Offer
No one wants to get dragged into endless, slow-moving negotiations. Setting a firm expiration date on your LOI keeps the momentum moving. It prevents founders from sitting on your offer while they quietly shop around for a better deal.
10. Protect Both Parties with Confidentiality
A robust, legally binding confidentiality clause is non-negotiable. Founders need absolute assurance that the sensitive data they share with you—like intellectual property and financial metrics—won't be leaked. It protects you as a buyer, too, ensuring the seller can't use your specific acquisition strategy to drive up prices elsewhere.
Download Your Free Letter of Intent Template
Download Your Free LOI Template
Now that you know exactly what goes into a professional LOI, it’s time to draft your own. Use our free, customizable template to kickstart your next acquisition on Obrinders.
Simply fill in your specific deal terms, customize the clauses to fit your needs, and remember to run the final draft by your legal counsel before hitting send. First impressions matter—make sure yours is airtight!
A quick note from the author: I am sharing these frameworks purely for educational purposes. Every startup and market dynamic is unique, so please conduct your own thorough due diligence. These thoughts are intended as a starting point for discussion and should not be considered financial, investment, or legal advice. The author assumes no responsibility or liability for any decisions made by readers based on the content of this blog.