How to Build Investor Conviction With LOIs

Here’s a common scenario: You’re out fundraising at an early stage (Seed, or Series A)  but you’re a deep-tech company without any recognized revenue or concrete commercial traction. Does that make it difficult? Certainly. But impossible? No.

With capital markets in chaos, and early growth stage funding more challenging to access, investors are even more critical of the pathway to revenue. As an early-stage investor of deep-tech companies, I am particularly focused on helping overcome this challenge because a big part of my role is supporting founders in their fundraising efforts for that next critical round.

When assessing companies, I try to understand a) what is the main value proposition of the startup (unit economics is often king); and b) to what degree that solves a big hairy problem for a customer. 

The latter is best solved with recognized revenue or a pathway of pilots that yield large commercial contracts. Without that in place, the critical piece is how founders describe why, and under what conditions, a company will purchase their product or service at scale.

LOIs are notoriously fickle, and I often disregard them altogether. However, with the right substance, they can showcase a more de-risked, venture-backable, commercial plan. In this circumstance, LOIs can be strong assets that serve to persuade the investor. 

These types of LOIs typically contain:

• A paragraph on why the customer needs your product. Why does the company need your solution? Why is your solution better than competitors? How long have they searched for that need? The more precise the data is, the more conviction I will get. 

• Potential number of units or contract size. VCs are looking for de-risked, venture-scale revenue opportunities. I’m thinking, “How do you get to $1B in revenue in 10-12 years?” “How does this customer and customers with similar profiles fit in this narrative?” At Seed stage, I want to know: How much money could you make per customer? On a pitch call, I’ll multiply this number by the number of similar customers to get us a bottom-up view of your market. 
  
  • If it’s your beachhead revenue channel, that’s totally fine, but a beachhead with ten $5M-per-year customers is a lot stronger than one with $1M average contracts.
  • Including a clear timeline for when customers plan to purchase adds another layer of precision – and conviction.

• Under what conditions the company would pay for the product. This sets the target cost of your techno-economic plan. I will look to underwrite your technology approach by this number. If a founder says a customer wants this urgently, but the purchasing price point requires solving science problems, which will create an undefined scale-up timeline, then I will discount the proclaimed interest.
  

LOI unattainable? Codify commercial traction in your data room

What if the corporate or end customer is not willing to codify their interest into a papered asset? Don’t panic. You can always simply communicate that detail in a verbal pitch, the deck itself, or otherwise included in the data room.

Here’s how:

• Conduct  50 customer interviews. Yes, I know that seems like a lot, but your job as a founder is to fully understand your customers, right? So it’s not wasted time. Transcribe those interviews or, if they don’t feel comfortable being recorded, take detailed notes and publish the key quotes and data in the data room. The knowledge on the sector and the precision will be an asset.
• Ask your top potential customers to be recorded for the data room, where they can communicate their needs directly. Body language and precise details will showcase the acuteness of the problem.

All things being equal (codified commercial interest there or not there), I will assess the strength of a revenue channel higher for founding teams that have a strong founder-market fit. These founders convey their work addressing second-order and third-order problems.  

I recently met with a 2X founder from the solar industry, who had a potential customer that he had previously worked with. At seed-stage, unsurprisingly, he had no commercial revenue or  recognized revenue. But he did have a picture with the decision-maker of the corporation placed in the deck, knew their exact needs, their exact timeline for decisioning, how quickly they adopted prior technology, and the exact orientation. This de-risked him not having a stronger commercial milestone.

Caveats and Gold Standards

For some companies,  especially those at the top of the hype cycle or in markets with obvious, game-changing potential and clear cost benchmarks this kind of commercial content at the seed stage becomes less critical. 

But by the time a company hits Series A or B, and starts thinking about JDAs, binding or conditionally binding off-take agreements, or early sales, the same framework applies.

While founders have limited time and attention, detailed LOI, real papered traction, or sharp illustrations in the deck that show you really understand your customer are gold standard signals in a world of limited time and attention. Sure, some founders can raise without this level of detail, especially in areas where investors already have deep conviction or there’s strong founder-market fit. But for many, it’s worth aiming for this higher bar.

Even going through the process of trying to secure an LOI or codify commercial interest is valuable. 

• You’ll learn how the customer’s organization works, who makes the decisions, and how fast they move. 
• It becomes a feedback loop, helping you better align your solution to what the customer actually needs.

Customer obsession matters. In deep-tech climate solutions, we need to double down on it – the climate depends on it.