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Investment Letter of Intent (LOI) Template: Key Elements & Considerations

An Investment Letter of Intent (LOI) is a non-binding document outlining the key terms of a proposed investment between an investor and a company seeking funding. While not legally enforceable in its entirety, the LOI signifies a serious intention to proceed with due diligence and negotiate a definitive investment agreement. A well-drafted LOI can streamline the negotiation process, clarify expectations, and save time and resources for both parties. Below are key elements to include in an investment LOI template:

Essential Components of an Investment LOI

1. Parties Involved:

Clearly identify the investor(s) and the company receiving the investment. Include their full legal names and addresses.

2. Investment Amount and Valuation:

Specify the proposed investment amount and the pre-money and post-money valuation of the company. Indicate the basis for the valuation (e.g., market comparables, discounted cash flow analysis). The valuation is often a point of significant negotiation.

3. Type of Security:

Detail the type of security being offered to the investor (e.g., common stock, preferred stock, convertible note). If preferred stock, outline the key preferences, such as liquidation preference, dividend rights, and voting rights.

4. Use of Funds:

Describe how the company intends to use the investment proceeds. This provides transparency and allows the investor to understand the company’s growth strategy.

5. Due Diligence:

Outline the scope and timeline for the investor’s due diligence review of the company. This section should grant the investor access to relevant financial and operational information.

6. Exclusivity:

Often, the LOI will include an exclusivity clause, preventing the company from soliciting or negotiating with other investors for a specified period. This gives the potential investor time to conduct due diligence without competition.

7. Closing Conditions:

List the conditions that must be met for the investment to close, such as successful completion of due diligence, negotiation of definitive agreements, and any necessary regulatory approvals.

8. Board Representation:

If applicable, specify whether the investor will have the right to appoint a member to the company’s board of directors.

9. Confidentiality:

Include a confidentiality clause to protect sensitive information exchanged during the due diligence process.

10. Governing Law:

State the jurisdiction whose laws will govern the interpretation and enforcement of the LOI.

11. Non-Binding Nature (with exceptions):

Explicitly state that the LOI is non-binding, except for specific sections such as confidentiality, exclusivity, and governing law, which are intended to be legally enforceable.

12. Term/Expiration Date:

Specify the date on which the LOI will expire if a definitive agreement is not reached. This creates a timeline for negotiations.

Important Considerations

• Legal Counsel: Both the investor and the company should seek legal counsel to review the LOI before signing.
• Negotiation: The LOI is a starting point for negotiations, and its terms can be modified to reflect the agreement of both parties.
• Good Faith: While non-binding, the LOI establishes a framework for good-faith negotiations toward a definitive agreement.

Using an investment LOI template can provide a solid foundation for structuring an investment transaction, but it’s crucial to tailor the template to the specific circumstances of the deal and to seek legal advice throughout the process.

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