You’ve got your NDA signed, your MOU is in place, and now it’s time to step things up with a Letter of Intent (𝗟𝗢𝗜). The LOI is the milestone where your relationship with a potential offtake client shifts from polite interest to a focused effort—without binding commitments just yet.
Here’s what you need to know:
📜 𝗪𝗵𝗮𝘁’𝘀 𝗮𝗻 𝗟𝗢𝗜?
An LOI is a non-binding document that formalizes the 𝗶𝗻𝘁𝗲𝗻𝘁 𝘁𝗼 𝗲𝘃𝗲𝗻𝘁𝘂𝗮𝗹𝗹𝘆 𝗱𝗲𝘃𝗲𝗹𝗼𝗽 𝗮𝗻𝗱 𝘀𝗶𝗴𝗻 𝗮 𝗯𝗶𝗻𝗱𝗶𝗻𝗴 𝗰𝗼𝗻𝘁𝗿𝗮𝗰𝘁. Tactically, it is 𝗮 𝗽𝗹𝗮𝗻 𝘁𝗼 𝗱𝗲𝘃𝗲𝗹𝗼𝗽 𝗮𝗻𝗱 𝗮𝗴𝗿𝗲𝗲 𝗼𝗻 𝗮 𝗧𝗲𝗿𝗺 𝗦𝗵𝗲𝗲𝘁. It sets a clear 𝘁𝗶𝗺𝗲𝗹𝗶𝗻𝗲 for both parties to negotiate and finalize the Term Sheet, which will serve as the foundation for the eventual offtake agreement. Treat it like a plan, that sets a timeline and resources to develop key terms of your future binding agreement.
🛠 𝗪𝗵𝗮𝘁 𝗚𝗼𝗲𝘀 𝗜𝗻𝘁𝗼 𝗮𝗻 𝗟𝗢𝗜?
1️⃣ 𝗜𝗻𝘁𝗲𝗻𝘁: State the goal—agreeing on a Term Sheet that outlines the main terms of a future offtake agreement.
2️⃣ 𝗧𝗶𝗺𝗲𝗹𝗶𝗻𝗲: Define clear deadlines for completing due diligence, drafting the Term Sheet, and locking it in. Don’t be too hasty. Allow for plenty of time.
3️⃣ 𝗦𝗰𝗼𝗽𝗲: Specify what areas the Term Sheet will cover, like product specs, volumes, pricing mechanisms, and delivery terms. You don’t need to be super specific, as additional terms may come up in negotiations.
4️⃣ 𝗥𝗲𝘀𝗽𝗼𝗻𝘀𝗶𝗯𝗶𝗹𝗶𝘁𝗶𝗲𝘀: Assign roles for the work ahead, ensuring everyone knows who is accountable for which tasks. Pay attention to information sources - who will provide what information.
💡 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀
The LOI isn’t just another piece of paper—it’s a roadmap. It ensures both parties are aligned on timelines and expectations as you work toward the Term Sheet. It also gives your corporate partner an instrument to muster more corporate resources for the deal, showing that both sides are committed to making progress.
📈 𝗣𝗿𝗼 𝗧𝗶𝗽
Use the LOI to lock in your partner and set the negotiation pace. There is not much substance in the LOI, but a solid LOI makes pushing the Term Sheet discussions smoother.
🔗 𝗬𝗼𝘂𝗿 𝗡𝗲𝘅𝘁 𝗦𝘁𝗲𝗽?
If you’re preparing to draft or negotiate an LOI, I can help you navigate the process and set yourself up for success. Let’s make sure you get to the Term Sheet phase with confidence. Message me for insights on scaling cleantech, and don’t forget to follow me here or visit my blog for deeper dives into off-take strategies.