An Indication of Interest (IOI) is a preliminary written expression of an investor's willingness to participate in an investment opportunity. Unlike a formal commitment, an IOI is non-binding and serves as a signal that an investor is seriously considering the deal. Founders typically use IOIs to validate market demand for their fundraising round, while investors use them to express serious interest without the legal complexity of a binding agreement.
How It Works
When a founder shares a deal with potential investors, interested parties may respond with an IOI. This document outlines the investor's preliminary terms, investment amount, and conditions for moving forward. The IOI isn't a contract—it's essentially a mutual acknowledgment that both parties want to explore the opportunity further. Once multiple IOIs are collected, founders can gauge investor interest, refine their pitch, and determine which investors align best with their vision. IOIs typically lead to deeper due diligence and eventually a term sheet, which is binding.
Why It Matters for Investors
For angel investors, an IOI serves as your opportunity to express interest without overcommitting. It gives you time to conduct preliminary diligence, ask clarifying questions, and assess whether the opportunity fits your investment thesis. IOIs also signal to founders that you're a serious investor, not just a passive observer. In competitive funding rounds, investors who submit IOIs early often gain advantages during negotiations. Additionally, submitting an IOI shows commitment, which can influence how founders prioritize your involvement in future communications and investor updates.
Example
Imagine you're evaluating a B2B SaaS startup seeking $2 million in seed funding. After an initial pitch meeting, you're impressed but need more information about their unit economics and customer acquisition costs. You submit an IOI indicating your interest in investing $250,000 at a $10 million valuation, pending satisfactory responses to your technical diligence questions. The founder uses your IOI—along with others—to confirm there's sufficient investor interest to move forward with formal fundraising. Two weeks later, after you've reviewed their financials and spoken with customers, you both agree on terms and move to a binding term sheet.
Key Takeaways
- An IOI signals serious investor intent but carries no legal obligation to invest
- IOIs help founders validate interest before formal fundraising and allow investors to explore opportunities without commitment
- Submitting an IOI early can strengthen your negotiating position and demonstrate commitment to founders
- IOIs typically precede due diligence and term sheets in the investment process