A healthy lower middle market sell side process touches 200 buyers and signs one deal. The funnel math is the same every time. If your stage-to-stage conversion is below the benchmark, the cause is at the prior stage, not the current one.

This post breaks down the five stages, the conversion benchmarks, the dominant failure mode at each stage, and the column set every banker should track on every buyer.

The five stages

LMM sell side processes follow the same five-stage funnel:

| Stage | What happens | Typical conversion to next stage | |---|---|---| | Outreach | Sized buyer list. Sector fit, size, thesis. Personalized teaser sent. | 25-35% to NDA | | NDA | Mutual NDA signed. CIM distributed within 48 hours. | 25-35% to IOI | | IOI | Indication of interest with valuation range and key terms. | 25-40% to LOI | | LOI | Bid letter with firm price, exclusivity, conditions. Pick 1 or 2 to advance. | 70-85% to close | | Close | Diligence, definitives, working capital, escrow, signing, closing. | n/a |

The math: 200 outreach → 60 NDAs → 18 IOIs → 5 LOIs → 1 close.

That ratio is not a target. It is a baseline. Some processes run wider (more buyers contacted, lower conversion at each stage) and some run tighter (fewer buyers, higher conversion). What matters is whether the conversion at each stage clears the benchmark.

Why conversion benchmarks matter

A leaky funnel is diagnostic. The dominant failure mode at each stage tells you what to fix.

Stage 1 to 2 (outreach to NDA): teaser problem

If your outreach-to-NDA conversion is below 25 percent, the problem is the teaser, not the list.

Teasers fail in three ways: generic hook (no sector-specific reason this buyer should care), weak headline metric (revenue without growth, EBITDA without expansion path), or buried lede (the most compelling fact is on page 2 instead of page 1).

The fix: rewrite the teaser. Lead with the single most compelling fact about the business. Make it specific to this buyer's stated thesis.

Stage 2 to 3 (NDA to IOI): CIM problem

If your NDA-to-IOI conversion is below 25 percent, the problem is the CIM, not the buyers.

CIMs fail when they don't answer the questions buyers actually have: customer concentration, gross margin trend, growth thesis with specifics, key person risk, sector dynamics. CIMs that hide concentration or rely on marketing language ("industry-leading") instead of data ("ranked #2 by revenue in [defined market]") get skimmed and ignored.

The fix: revise the CIM. Add specifics. Anonymize but disclose concentration. Quantify the growth thesis with milestones and assumptions.

Stage 3 to 4 (IOI to LOI): process letter problem

If your IOI-to-LOI conversion is below 25 percent, the problem is process management.

The IOI is non-binding. Buyers send IOIs cheap and easy. Converting an IOI to an LOI requires the banker to push hard on terms, set deadlines, force trade-offs, and force the buyer to commit. Soft process letters get soft IOIs and soft LOIs.

The fix: tighten the process letter. Set hard deadlines. Reject IOIs that miss the deadline. Require specific terms (not just price) at the IOI stage. Force trade-offs.

Stage 4 to 5 (LOI to close): retrade problem

If your LOI-to-close conversion is below 70 percent, the LOIs are loose.

Most retrades happen because the LOI was vague: undefined working capital methodology, "satisfactory diligence" closing conditions, auto-extending exclusivity. The buyer uses the loose language to retrade in week 8.

The fix: tighten the LOI. See The LOI Clause Dissection for the six phrases to redline.

The buyer outreach tracker

Every banker should track every buyer in a structured tracker, not a notes app or email thread. The columns that matter:

• Buyer name — fund or strategic
• Type — PE, family office, strategic, other
• Sector thesis — what this buyer wants
• Size fit — AUM or revenue, in our range or out
• Geography — relevant for cross-border deals
• Primary contact — single point of contact
• Last touch date — when did we last hear from them
• Next touch date — when is the next planned outreach
• NDA status — sent, signed, returned, declined
• CIM sent date — for tracking response time
• IOI received — yes / no, value, terms
• LOI received — yes / no, value, terms
• Status — cold / NDA / IOI / LOI / closed / dead
• Reason if dead — valuation / fit / process / no response / other

The "reason if dead" column is the most valuable. Mine it weekly. If 60 percent of dead leads are "no response," the teaser is the problem. If 60 percent are "valuation," the asking price or the comparables story is the problem. If 60 percent are "fit," the buyer list is the problem.

How to use the tracker for funnel diagnosis

Run the conversion math weekly:

• Outreach to NDA: NDAs signed / Outreach sent
• NDA to IOI: IOIs received / NDAs signed
• IOI to LOI: LOIs received / IOIs received
• LOI to close: deals closed / LOIs signed

Compare to the benchmarks (25-35% / 25-35% / 25-40% / 70-85%). The first stage that fails its benchmark is where to focus.

This is the difference between a banker who runs a process and a banker who watches a process happen. The math gives you the diagnosis. The diagnosis tells you what to fix.

The signal that your funnel is healthy

Healthy funnel signals:

• Outreach to NDA at 28-32%
• NDA to IOI at 32-38%
• IOI to LOI at 30-40%
• LOI to close at 80%+
• Reason-if-dead column dominated by "valuation" or "fit" — actionable signals
• Dead leads measured weekly, drop reasons categorized

Leaky funnel signals:

• Outreach to NDA below 20%
• "No response" dominates the dead leads column
• Multiple buyers go silent after CIM with no formal "no"
• IOIs come in without specific terms (just a price range)
• LOIs retrade more than 30 percent of the time

If you see leaky signals, the fix is at the stage before the leak, not at the leak itself.

Tools and references

The full Buyer Outreach Tracker (XLSX) is free at /resources/buyer-outreach-tracker. Includes the column set above with conversion math built in, plus filter views for each stage.

For NDA language to use at the start of the funnel, see the M&A NDA Template. For LOI guidance to tighten the LOI-to-close stage, see the LOI Checklist.

Bottom line

200 buyers in. 60 NDAs. 18 IOIs. 5 LOIs. 1 close.

Each stage has one dominant failure mode. Outreach to NDA: teaser. NDA to IOI: CIM. IOI to LOI: process letter. LOI to close: LOI quality.

Diagnose the leak before adding more buyers to the top. Add buyers to a leaky funnel and you get more dead leads, not more closed deals.