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Regardless of whether your investors' intentions are honorable, you can make sure their letter of intent is.

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This story appears in the October 2001 issue of Entrepreneur. Subscribe »

When you finally hear the magic words "We want to invest," temper your enthusiasm just a bit. That means nothing coming from an investor's mouth until you successfully negotiate the letter of intent.

The letter of intent, or LOI, is the first official document you receive from an investor after the handshakes are over and the real work on the deal begins. Though 99 percent of LOIs are not binding, don't underestimate the document's importance, says Jay McEntee, an attorney and venture capitalist with Harron Capital, a private venture capital firm located in Frazer, Pennsylvania. "The letter of intent will serve as the blueprint of the deal and moves negotiations from an indication of interest to the closing table," says McEntee.

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