So I have never had this situation as the founder but did from the investor side, although I wasn't the lead -- I have also been with a startup that cancelled the term sheet from an investor. Just remember, a term sheet isn't generally a legal binding document, other than to say these are the terms we agree to and now we will work towards a final closing documents etc. Many founders use a term sheet as a tool from one investor/group to shop others to see if they can get a more favorable term sheet. If they can they may go back to the original group and ask if they would like to join the new term sheet as a non-lead.<p>Anyway, unless you have some non-standard term sheet, I do not think you have to worry so much as long as you are honest and up front. If you approach this properly it won't hurt you or your company, it is business not personal. Many, maybe most, investors would take a better deal in 3 seconds flat if they got one before the final docs were signed and money wired, founders have to remember that and look out for their company and their team. I have seen investors back out after docs are signed but before money is transferred. Could a startup sue them, sure, will they succeed? Probably not and it will waste a shit ton of resources and some investors have counted on that.<p>Just my 2 cents, but don't try to back out of a term sheet unless you already have a new one in place from someone else on more favorable terms. But also remember, the terms aren't the only factor, the quality and capabilities of the investor should also be considered closely. I'd take a lower valuation from a better investor who I know is more bought in on the success of the company than getting a slightly better valuation with an investor that doesn't have much to offer outside of cash and isn't as bought in.