How to write LOI for your startup? (Free Template)
You have an awesome product idea.
You just created your first MVP which is barely working.
Now it’s time to test it in the market.
To convince investors that your product has a market fit you need to get some commitment from Clients. This will also boost your team morals.
The client will never sign if he doesn’t feel that this product will solve his problem.
In this article, I’ll describe “How you can formulate your first LOI?” Using this LOI you will get feedback from your clients about your product.
What is LOI?
LOI (Or Letter of Intent) is an informal non-binding letter that represents a commitment from the client that he will be using your product once you achieve certain goals.
What is the goal of LOI?
LOI “Letter of intent” represents a primary commitment form the client. Which could be converted to a contract later.
Goals of LOI are three:
- Get feedback regarding your product
- Get a documented commitment from the client
- A prove of your product-market fit to investors
Why use LOI?
Verbal feedback from clients are often misleading
Convincing a client to sign a contract for a product that is not ready yet is not an easy process
Signing formal contracts with clients is a time-consuming process
This is why most startup founders prefer to sign Letters of intent. LOIs never requires a legal department approval as it’s a non-binding contract and doesn’t represent any formal commitment.
How to formulate your first LOI?
LOI consist of 4 main paragraphs. You can re-write those paragraphs in any way that benefit your startup and is acceptable by the clients
1- Intro: As any letter, the Letter of intent requires an intro that clarifies what is it. Example below
“We would like you to take part in the pilot of the first version of “mngr” by allowing you to
propose changes to the software (e.g. layout, modules, analytics, the language used, etc) which
could make the software better. We understand that this expression of interest by us is
completely non-binding, that the pilot will be at no charge, and that there is an absolute no-obligation form you to take part if you changed your mind, or for us to accept your proposed
changes to the software if we see it doesn’t benefit the main objective.”
2- Benefits Client could enjoy now from the product.
“The product is now ready to provide the below benefits:
1-
2-
“
3- Upcoming features as agreed upon with client or from roadmap
“In 2 months the below features will be available
1-
2-
“
4- The client commitment clause: You need to state that the client is interested in buying the product at a certain point after finishing a minimum threshold. You might want to include
- Timeframe for consideration of purchase to set up a mental commitment of timing
- Summary of financial terms that the client will pay in the future (price per unit)
5- Willingness to provide a reference call: if an investor called the client to make sure that this LOI is legit the client will provide him with all required details
6- non-binding clause: so the client can assure that this is just a letter of interest, not a contract.
“This letter of Intent does not create or constitute any legally binding or enforceable obligations or liabilities between the parties, and may be subject in the future to further amendment or modification”
7- Signature block with both parties’ names and companies and titles.
A sample letter of intent can be found here and also you can find more information from this site.
There is no one way of doing a Letter of intent but every startup is a unique case. so use the above-mentioned points to formulate your own LOI and then you will keep updating it and editing till you reach your optimum format.
