Definition. A non-binding document outlining the headline terms of a proposed transaction. Typically includes the purchase price, the deal structure (cash, stock, earnout components), the working capital target, the exclusivity period, and the diligence timeline. The LOI is the starting point of a serious conversation, not the end of one; almost every term in an LOI is renegotiated before close.
The LOI is the first document a buyer puts in writing. Founders often treat it as a commitment; buyers treat it as a position. The exclusivity clause (which prevents the seller from talking to other buyers for the diligence period) is the term most worth pushing back on; exclusivity is the buyer’s leverage, and shorter exclusivity windows preserve the seller’s optionality.
Almost everything in an LOI is renegotiated based on what diligence finds. The headline price is the number most often adjusted downward; the working capital target, the indemnification cap, the earnout structure, and the survival period are all in play through to close.