Pre-Sales, Deposits and Letters of Intent: Validation With Money
Every other validation method measures a proxy for demand. Pre-sales measure demand itself. When a customer hands over money, or signs a document committing to, they are telling you something no survey can.
Forms of early money
| Method | Best for | Strength of signal |
|---|---|---|
| Refundable deposit | Hardware, vehicles, consumer products with a long lead time | Strong, though refunds soften it |
| Pre-order at full or discounted price | Digital products, courses, physical goods | Very strong |
| Letter of intent (LOI) | B2B software and services | Medium to strong, depending on detail |
| Paid pilot | Enterprise and B2B | Very strong |
| Crowdfunding pledge | Consumer hardware, games, creative projects | Strong if the audience was built first |
The deposit that made headlines
When Tesla unveiled the Model 3 on March 31, 2016, it asked for a refundable deposit of $1,000. The company said it had received more than 325,000 reservations within about a week. Deposits are refundable and some people never converted, so this was not the same as 325,000 sales. But it was a far stronger signal than any market-research report, and it came months before the first car was delivered.
Letters of intent for B2B ideas
An LOI is a short document in which a business states that it intends to buy your product if it meets certain conditions. It is not usually legally binding, so its value depends on detail: a named signatory with budget authority, the price, the volume, a start date and the conditions. A vague "we'd be interested" on letterhead is worth little more than a polite email. Better still is a paid pilot, even a small one, because it proves that the buyer's procurement process can actually produce money.
How to ask
- Start from the problem the customer described in your interviews, in their words.
- Describe what they will get, by when, and what happens if you do not deliver (a full refund is the usual answer).
- Name a price. Do not ask what they would pay; propose a number and watch the reaction.
- Make paying easy: a payment link, an invoice, a simple order form.
- Deliver something quickly, even a manual version (see concierge and Wizard of Oz MVPs).
Pre-registration in the betting industry
A good example of pre-launch commitment comes from the expanding US sports-betting market. Since the Supreme Court's 2018 decision in Murphy v. NCAA, states have legalised betting one by one, and in several of them regulators have allowed operators to take pre-registrations before launch day, as happened ahead of Ohio's launch on January 1, 2023. Sportsbooks used the window to sign customers up in advance, often with a promotion attached, which gave them an early read on demand in each state and on which offers worked.
The same principle works far beyond betting: get people to complete as many steps as possible before the product exists, and measure how many do. For the wider picture of what it takes to launch in a licensed market, see validating iGaming and sports-betting startup ideas.
Pre-sales without the lottery mindset
Crowdfunding is a public form of pre-sale, and it can be powerful. It can also be a lottery ticket: launch a campaign with no audience and hope it goes viral. The successful campaigns usually bring much of their early support with them on day one. We compare the two approaches in crowdfunding versus the lottery mindset.
Handling the money properly
Be clear about refunds, keep pre-sale money visible in your accounts, and check consumer-protection rules where you sell, which often govern how long you can take payment before delivering. Promising and failing to deliver is the fastest way to turn validation into reputational damage.
