Can an investor back out after signing a term sheet?
By SuLe · Updated 15 July 2026
Usually yes — an investor can walk away after signing a term sheet, because the commercial terms are almost always "subject to contract" and not legally binding. English law imposes no duty to negotiate in good faith, so they can withdraw before definitive documents are signed. Only a few clauses — exclusivity, confidentiality, costs cover — typically bind them.
Key facts
- A term sheet's commercial terms (valuation, amount, share class) are normally "subject to contract" and non-binding.
- English law imposes no duty to negotiate in good faith — an investor can withdraw (Walford v Miles, 1992).
- The clauses that usually do bind are exclusivity (no-shop), confidentiality, and any costs-cover provision.
- If an investor breaches a binding clause, your remedy is limited to that clause — not the lost investment.
- Short exclusivity periods and clean cost provisions are your main protections when signing.
Is a signed term sheet actually binding?
Mostly not. A term sheet is designed to record the shape of a deal and move both sides towards definitive documents — it is not itself the investment contract.
The commercial terms are typically headed "subject to contract", which signals that neither side is bound until the final subscription and shareholders' agreements are signed. Until then, valuation, amount and share class are intentions, not promises.
A handful of clauses are the exception. Exclusivity, confidentiality and costs provisions are usually drafted to be binding straight away, precisely because they need to bite during the negotiation window rather than after it.
Can I force the investor to go through with it?
No. English law does not recognise a duty to negotiate in good faith, so a party can walk away from an unconcluded negotiation without breaching anything — the principle confirmed in Walford v Miles (1992).
That means you cannot compel an investor to complete, and you generally cannot claim the money they had proposed to invest. The deal simply does not exist until the binding documents are signed.
It feels brutal after weeks of diligence, but it cuts both ways: you are equally free to walk if a better offer or a change of heart arrives before signing.
What can I claim if they pull out?
Only for breach of a clause that was actually binding. If the investor broke confidentiality, or reneged on a costs-cover promise, or shopped your deal during an exclusivity period, you may have a claim tied to that specific clause.
Any recovery is limited to what that clause protects — for example, the costs you were promised. A money claim for those sums is possible, but you cannot bootstrap it into damages for the whole investment you did not get.
In practice, most investor pull-outs are lawful withdrawals from a non-binding deal, leaving nothing to sue over. The real cost is the time and momentum lost.
How do I protect myself before signing?
Manage the downside, because you cannot legislate for the investor's commitment. Keep any exclusivity (no-shop) period as short as you can bear, so a withdrawal does not leave you having frozen every other conversation for months.
Make sure any costs-cover or break provisions are clearly drafted and mutual where possible. Ambiguity here is where disputes start.
Most importantly, keep warm relationships with other investors running until definitive documents are signed. A signed term sheet is encouraging, not a closed round — treat your pipeline accordingly.
| Term-sheet clause | Typically binding? | If breached |
|---|---|---|
| Valuation / amount / share class | No — "subject to contract" | No claim; deal not concluded |
| Exclusivity (no-shop) | Yes | Claim tied to the breach |
| Confidentiality | Yes | Claim for misuse of information |
| Costs cover / break fee | Yes, if drafted so | Recover the specified costs |
| Conditions to completion | No — they gate the deal | Investor may simply not proceed |
Worked example
Leo and Hana run a climate-tech hardware startup and sign a term sheet with Northwind Ventures: a £1.2m round, subject to contract, with a six-week exclusivity period and mutual confidentiality. Four weeks in, Northwind's committee changes direction and walks.
Leo and Hana cannot force the investment or sue for the £1.2m — there was no binding deal to complete, and no duty on Northwind to keep negotiating. Because Northwind did not breach exclusivity or confidentiality, there is nothing to claim. The lasting damage is the four weeks of frozen conversations, which is exactly why they had pushed for a short exclusivity window rather than a three-month one.
Where founders go wrong
Treating a signed term sheet as money in the bank
— the commercial terms are intentions until definitive documents are signed.Agreeing long exclusivity periods
— a lengthy no-shop freezes your other options while giving the investor a free look.Stopping all other conversations too early
— keep your pipeline warm until completion, not just until the term sheet.Expecting to sue for the lost investment
— with no duty to negotiate in good faith, your only claims are on the binding clauses.
Related questions
Is a term sheet legally binding?
Mostly no. The commercial terms — valuation, amount, share class — are typically "subject to contract" and not binding. A short list of clauses usually is binding: exclusivity (no-shop), confidentiality, and any clause about who bears costs. The rest is an agreement to try to agree. [More: What is a term sheet — and is it legally binding?]
Can I sue an investor who walks away?
Generally not for the investment itself. English law imposes no duty to negotiate in good faith (Walford v Miles, 1992), so an investor can withdraw before signing definitive documents. You may have a claim only if they breached a binding clause, such as exclusivity or confidentiality.
What parts of a term sheet actually bind the investor?
Usually the exclusivity (no-shop) period, the confidentiality obligations, and any costs-cover clause. These are drafted to be binding even though the deal terms are not. If an investor breaches one of these, your remedy is limited to that clause. [More: What is a no-shop (exclusivity) clause in a term sheet?]
How do I protect myself when signing a term sheet?
Keep exclusivity periods short, make sure any costs-cover or break provisions are clearly drafted, and don't stop other conversations for longer than you must. Treat the commercial terms as intentions, not guarantees, until definitive documents are signed.
An investor walking away is usually lawful — but whether they breached exclusivity or confidentiality, and what those clauses actually let you recover, turns on the precise drafting. A SuLe solicitor can review a term sheet before you sign, keep the binding clauses tight, and tell you where you really stand if one is broken. Book a free consultation about your situation.
Keep reading: A customer won't pay an invoice — what are my legal options? · What happens if we breach an investment warranty? · What is a term sheet — and is it legally binding? · What is a no-shop (exclusivity) clause in a term sheet? · What founder protections should I negotiate in a term sheet?
Primary sources: GOV.UK — Make a court claim for money · Walford v Miles [1992] (House of Lords)
