Investment Letter of Intent Template

You've found a company worth backing, or an investor ready to put money in. Before anyone pays for lawyers and long contracts, both sides need proof they actually agree on the big points. A short letter can settle that early.

What Is an Investment Letter of Intent?

An investment letter of intent (LOI) is a written outline of a proposed investment. It records the deal's basic terms – how much the investor plans to put in, what they get in return, and when the deal should close – while the parties are still negotiating.

Think of it as a roadmap, not the finished trip. The LOI doesn't move any money or shares. It shows that both sides are serious and gives the lawyers a clear starting point for the final investment agreements. Putting terms on paper also exposes disagreements early, before either side has spent much time or money.

When You Might Use One

An LOI usually comes after the first conversations and before the formal paperwork. Common situations include:

• A startup founder raising money from an angel investor or private investor
• An investor buying a minority stake in a small, privately held business
• A company bringing in capital to fund growth, hiring, or a new product
• Two businesses exploring a joint venture or a larger merger or acquisition

Selling an ownership stake in a company is generally treated as a securities offering under federal law. The SEC explains that such offers must be registered or fit an exemption, and its overview of exempt securities offerings is a useful read before you raise money from private investors.

Is It Legally Binding?

In most cases, no. An investment LOI typically states that neither side has to complete the deal, and either party can walk away before the final agreements are signed.

That said, the wording matters. Many LOIs mix non-binding business terms with a few binding promises, such as keeping shared information confidential, not negotiating with other investors for a set period, or which state's law applies. If a dispute comes up, a court may look at the exact language and at how the parties acted after signing. Clearly labeling which sections bind and which don't can help avoid confusion later.

What to Include in Your LOI

A strong LOI is specific enough to guide the final contracts but short enough to sign quickly. Most cover:

• The names and addresses of the investor and the company
• The type of investment, such as equity, a convertible note, or a loan
• The total investment amount and the company's valuation
• The ownership percentage or number of shares the investor expects
• How the company plans to use the money
• Investor rights, such as a board seat or regular financial reports
• Conditions, such as due diligence or the investor securing financing
• Confidentiality, exclusivity, and governing law terms
• A target closing date, an expiration date for the offer, and signatures

ConsumerShield's template walks you through each of these points so nothing important is left out.

LOI vs. Term Sheet

People sometimes use these names interchangeably, but they aren't quite the same. An LOI is usually a letter that gives a high-level picture of the deal. A term sheet tends to be a more detailed list of the financial terms, such as liquidation preferences or conversion rights. Smaller private deals often use an LOI alone, while larger funding rounds may use both.

What Happens After Signing

Signing moves the deal into due diligence. The investor reviews the company's financial statements, contracts, ownership records, and any legal issues. At the same time, lawyers draft the final agreements.

Terms can shift during this stage if due diligence turns up surprises. If everything checks out, the parties sign the final documents and close – that's when the money and ownership actually change hands. If the deal falls apart, each side usually covers its own costs, although any binding clauses, like confidentiality, still apply.

Common Mistakes to Avoid

A few small oversights can cause big headaches. Watch out for vague numbers, such as leaving the valuation open. Another common problem is forgetting to say which clauses are binding. Some LOIs also skip an expiration date, which can leave an old offer hanging.

It's also wise to avoid treating the LOI as the final deal. Until closing, the investor hasn't committed any funds, and the company hasn't issued any shares. Many people consider having an attorney look over the final agreements before signing them.

An LOI is often just one step in a bigger transaction. If you're also planning an asset purchase, a partnership, or a real estate deal, find letter of intent templates for those situations on ConsumerShield.