Machiavellian investors will try this trick. Once you sign a term sheet, the investor will try to retrade terms. By then, you’ve told other prospective investors that you’ve signed a term sheet. It’s hard to go back to them and explain what’s happening. And if you walk away from the signed term sheet, it’s hard to talk to new investors with a blown-up term sheet on your hands.
Babak Nivi is a co-founder of AngelList and Venture Hacks. Previously, he was an entrepreneur-in-residence at Bessemer Venture Partners and Atlas Venture. He has worked on startups including Songbird, Grockit, and Kovio. He went to school at MIT where received 2 patents and published in Science.