For many founders, receiving a Letter of Intent is one of the most exciting moments in the sale process. After years of building the business, someone has finally put in writing that they want to buy it. It feels like validation, momentum, and progress all at once.
But that excitement is also what makes the LOI such a dangerous stage. It is often the moment when founders relax too early, focus too heavily on the headline price, and give away leverage before they fully understand what is actually being proposed.
That was the focus of the fourth webinar in Venero’s Complete Tech M&A Playbook. Elie Youssef and Georgios Markakis explored how founders should think about Letters of Intent, what risks tend to be hidden inside them, and how to use this stage of the process to protect value rather than lose it.
An LOI is not the finish line
One of the key messages from the webinar was that an LOI is not just an expression of interest. It is the document that sets the commercial framework for everything that follows.
In most cases, it is not legally binding in the sense that it does not force the buyer to complete the deal. But it is still hugely important, because it marks the point where the process usually shifts from a competitive environment, where multiple buyers may be involved, into a bilateral negotiation with a single party. Before exclusivity, leverage is being created. After exclusivity, it is usually being defended.
Seen properly, the LOI is a milestone between marketing the business and entering due diligence. The more clearly it captures the common understanding between buyer and seller, the fewer surprises there should be later on.
The headline number rarely tells the full story
A strong headline valuation can be misleading. Two offers may look similar on the surface but lead to very different outcomes once you look at what shareholders actually receive, when they receive it, and how much risk remains with them after closing.
That is why founders need to get past enterprise value and focus on seller proceeds. Cash, debt, debt-like items, working capital adjustments, deferred payments, rollover equity, escrows, and earn-outs all affect what ultimately lands in the seller’s hands. A business might be valued at $75 million, but the actual amount distributed to shareholders could be materially lower once those adjustments are applied.
If the equity bridge is vague at the LOI stage, it creates room for value leakage later. And once exclusivity has been granted, that becomes much harder to push back on.
Structure can matter more than price
Another strong theme from the session was that founders should not judge an LOI purely on the top-line number. Structure often matters just as much, and sometimes more.
An offer with a higher headline valuation may still be less attractive if too much of the consideration is tied up in earn-outs, deferred payments, rollover equity, or conditions the seller no longer controls. By contrast, a lower headline offer with more cash at closing, cleaner funding, shorter exclusivity, and clearer diligence parameters may be the better outcome in real terms.
That is why the right offer depends not only on price, but on the founder’s priorities. Some may want maximum cash and certainty. Others may be comfortable keeping exposure to future upside. The key is to understand the risk-adjusted value of the package, not just the maximum number written on the front page.
Re-trades often start with vagueness
Re-trades rarely appear out of nowhere. More often, they begin with assumptions, definitions, or commercial points that were left open in the LOI.
If the buyer’s offer depends on hitting certain performance levels, or if working capital, debt-like items, or known business issues have not been properly framed, those gaps can be used later to reopen the economics. Broad diligence conditions create similar risk, especially if materiality thresholds and timelines are not properly discussed upfront.
Not every issue can be locked down before diligence begins, and every process has some uncertainty. But the principle is simple: the more clearly things are addressed before exclusivity, the harder it is for the buyer to use ambiguity to its advantage later.
Exclusivity should be earned
Another important part of the discussion was around exclusivity. Founders often give it away too easily, especially when the buyer has approached them directly and the process still feels informal.
But exclusivity has real value. Once it is granted, competitive pressure drops away, alternatives are put on hold, and the process starts moving on the buyer’s timetable. That can be the right step, but only if the buyer has earned it.
Before giving exclusivity, founders should have a clear enough understanding of the economics, the structure, the funding, the diligence plan, and the expected timetable to know where they stand. The goal is not to over-lawyer the LOI or force certainty on every minor point. It is to make sure the major commercial terms are clear enough that the process is not left exposed once leverage has shifted.
The package should be negotiated as a whole
One approach is to negotiate the LOI in fragments: price first, then earn-out, then rollover, then exclusivity, and so on. However, if not done in the appropriate context, it can allow value to drift from one part of the package to another without anyone properly controlling the overall outcome.
An alternative approach is to look at the LOI as one connected commercial package. Price, cash at closing, deferred consideration, governance rights, process terms, and exclusivity are all judged together. A concession in one area helps improve the overall result, not simply help the negotiation move forward.
That is also why shareholder alignment matters so much before an LOI arrives. Founders, boards, and shareholders need to be clear on what they are solving for. One shareholder may want liquidity now. Another may want to retain equity for a second bite of the apple. Those are not small differences, and they should be addressed before negotiations start narrowing.
Final thought
An LOI can be the start of a life-changing outcome, but it is also one of the points in the process where value can quietly slip away. The document may feel like confirmation that the hard part is over. In reality, it is often the moment when the most important commercial decisions are just beginning.
Founders do not need to treat an LOI with suspicion, but they do need to treat it with discipline. Read beyond the headline price, compare the whole package, protect leverage before exclusivity, and make sure the buyer earns the right to move forward alone.
Handled properly, the LOI is a tool that can help shape a great outcome.
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