Signing the LOI is where founders start losing the deal

A letter of intent is not a sale. It is an agreement to try to agree, and the period after signing is when the balance of power moves towards the buyer.

That is the warning in a piece by Bruce Eckfeldt for Inc., which sets out five ways founders give up leverage between the LOI and the close.

The first is the retrade. The buyer comes back with a lower number after the paperwork is signed and the seller, now emotionally and legally committed, takes it.

The second is a weak process. One bidder at the table means no alternative, and no alternative means no negotiating position.

The third is a dip during diligence. Trading softens while management is buried in data requests, and the buyer prices the softer numbers rather than the ones it bid on.

The fourth is hidden problems. Anything the seller has not surfaced tends to surface in diligence instead, on the buyer's terms and at the buyer's valuation.

The fifth is fuzzy walk-away terms. If the conditions under which either side can leave are vague, the party with more patience wins, and that is rarely the founder.

The practical reading is that the LOI is the last moment a seller holds real leverage. Exclusivity, timetable and the grounds for adjusting price are all easier to argue before signature than after it.

Eckfeldt's argument is that founders treat the LOI as a conclusion when it is closer to the opening of the negotiation that matters.