LOI Too Soon?
March 23, 2021
by a searcher from University of Gloucestershire in Toronto, ON, Canada
I launched my search in January and I have found a business I really like. In talking to many people before finding this company a general note was you won't know what a good business is in the first 6 months of search.
Is the fact that Im looking to submit an LOI in under 3 months of searching too soon?
It'd be great to hear some thoughts as I really like the business, but am uneasy about how quickly this is happening
from Harvard University in Omaha, NE, USA
A search is like a deck of cards. Your card is somewhere in there--near the top, the middle, or the bottom. Your job is to turn over one card at a time and to have the insight to know which card is yours. The cards are time. The insight is your thesis. How does this company align with your thesis? Are you being thoughtful in your analysis & biases so that you are not caught up in the excitement to make a deal happen? Have you identified the key items and risks for confirmatory due diligence?
I found my company in Month 4 and closed at the 6-month mark. I'm in my 7th year, and I think I did ok with my search. During my search, I averaged one IOI per month, and I had 2 LOIs in those 6 months.
from Harvard University in Chicago, IL, USA
I think it depends. Do you feel like your have the skill sets required to evaluate the enduringness of a company? If so, I would encourage submitting the LOI.
However, if you feel that you need to strengthen your business assessment capabilities, the Stanford Primer and HBR Guide to Buying a Small Business are great resources for learning key business quality and attractiveness indicators.
Separately, you can consider running deal details past experienced advisors/investors who can give you feedback on the merits and risks of the business that you are pursuing. Be careful not to reveal information that may breach an NDA.