Mar 3 2007 by Brad

Are “Letters of Intent” Useful in VC Meetings

Question: I am currently shopping VCs, or should I say I am letting them shop me. We have a service that will launch Q1 of 2007 and have had numerous discussions with large and small websites that want to use the service. Is it beneficial to get Letters of Intent from these people to bring with to VC meetings or are they useless in the grand scheme of things? 

The actual letters of intent are probably not that useful.  However, the deals are useful.  I’d rather you simply tell me the deals you have agreed to, what the terms are, and how they are going to help you.  I’d like a clear picture of how you think this is going to accelerate your business.  This is a lot more important to me than the actual documents, especially since I am going to be able to easily back check a few of the deals to see how real they are.

Recognize that there is a huge spectrum of deals on two dimensions.  The first is the size / potential impact of the deal.  In the words of an entrepreneur that I love working with, there’s a huge difference between a deal with Yahoo and a deal with JoeShmuckyWebsite (while there’s nothing wrong with a deal with Joe, it probably won’t really move the meter on your business and it might actually consume more energy than it is worth.)  The second is how real the deal is – an email response from BigCo saying “yes – that’s sounds interesting” is not worth much.  Agreement on terms is better.  An actual deployment plan and schedule is even better.  Of course – actual deployment is the best, although it still doesn’t necessarily mean the deal with pay off (especially if it’s a “trial” or “pilot.”)

Focus on the substance.  Don’t worry so much about form (e.g. the letter of intent.)  And – explain it to me – tell me why you think it will matter.