Investment Intent: What It Is and How to Use It
Investment intent is a formal document or declaration expressing a preliminary interest of an investor in participating in a business opportunity, without yet constituting a definitive legal commitment. This instrument serves as the first step in negotiations that may culminate in a concrete investment.
5/15/20252 min read
Concept and Purpose
Investment intent, also known as a letter of intent or memorandum of understanding, functions as a bridge between initial interest and formal commitment. It establishes the general principles and preliminary conditions that will guide future negotiations.
This document has several purposes:
Formalizing the investor's interest in the business
Establishing initial parameters for negotiations
Creating a framework for the due diligence process
Demonstrating commitment without generating definitive legal obligations
Enabling access to confidential business information
Essential Elements
A well-structured investment intent typically includes:
Identification of parties involved: Complete data of the investor and the target company/project
Business description: Nature of the intended investment
Preliminary values and conditions: Approximate amount and form of investment
Timeline: Estimated deadlines for each stage of the process
Precedent conditions: Requirements that need to be met for negotiations to advance
Exclusivity: Period during which parties will not negotiate with third parties
Confidentiality: Commitment to secrecy regarding shared information
Applicable legislation: Definition of the laws that will govern the document
Importance in the Investment Process
Investment intent plays a crucial role in the fundraising process by:
Formalizing interest: Transforming informal conversations into a structured process
Protecting parties: Establishing limits and protections for both sides
Facilitating planning: Allowing parties to organize for the next steps
Filtering opportunities: Separating genuinely interested investors from merely curious ones
Differences from Definitive Contracts
It's essential to understand that investment intent is not a definitive contract. Its main differences are:
Limited legal binding: Generally does not create definitive investment obligations
Preliminary character: Expresses initial conditions, subject to modifications
Need for complementary documents: Will be succeeded by formal contracts if negotiations advance
Practical Applications
Investment intent finds applications in various contexts:
Startups seeking investment: As a first step with angel investors or funds
Mergers and acquisitions: To initiate company purchase processes
Real estate projects: As an expression of interest in developments
Joint ventures: To establish initial bases for business collaborations
International investments: As a preliminary phase in cross-border negotiations
Important Considerations
When drafting or signing an investment intent, it is advisable to:
Legal counsel: Rely on specialized support in drafting or analyzing the document
Clarity in conditions: Precisely establish which points are binding and which are not
Care with commitments: Avoid clauses that might be interpreted as definitive obligations
Realistic deadlines: Establish feasible timelines for each stage of the process
Investment intent is a valuable instrument for structuring investment negotiations in an organized and professional manner, protecting the interests of all parties involved while establishing the foundations for a potential successful partnership.