An indication of interest is a buyer's first written signal that they are serious. It usually states a price range rather than a number, sets out the shape of the deal and asks for more information. It is not binding and it does not grant exclusivity, which is precisely what makes it useful to a seller.
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What it contains
A valuation range, the proposed structure in outline, the source of funding, the diligence the buyer expects to do and a timetable. Good ones name the assumptions behind the range so you can see which of your numbers they believed. Vague ones with a wide range and no assumptions are a request for information rather than an offer.
Why it comes first
Because it lets several buyers be compared before anyone is given exclusivity. Once you sign a letter of intent you are usually off the market, so the indication stage is where competition still exists. A process that jumps straight to a letter of intent with one buyer has skipped the part that sets the price.
How to read one
Look at the bottom of the range, not the top, because that is where the negotiation ends up after diligence. Check the funding: an offer from a buyer who still has to raise the money is worth less than a lower one from a funded buyer. And check what conditions are attached, because those are the reasons the price can move later.
Other questions people ask
Is an IOI binding?
No. It is an expression of interest with assumptions attached, and both the price and the conditions can change once diligence begins.
How many should I expect?
In a run process, several. In a listing, often none, because individual buyers tend to go straight to a letter of intent or an offer. The number you get is a measure of how competitive the process really is.
Should I respond to all of them?
Respond to all, progress the credible ones, and use the comparison to negotiate. Telling a buyer that others are interested is only useful if it is true.