Legal Question in Business Law in California

This is really more of a business decision than a legal one. It is not usually a good idea to allow a client to accrue such a large balance without making any incremental payments.

My suggestion would be to ask for a partial payment now and let them know you can't deliver any more work until you've received something (how much is up to you, but it should be more than a token amount). If you're aware that their funding is cancelled, no doubt they are, too. It is probable that they're pursuing other sources of financing, but it may or may not pan out. Meantime, there's no real reason why you should allow them to increase the amount they owe you. After you request payment, they will probably tell you their funding has dried up--if they don't, and don't pay you, then you should let them know you're aware of the situation and are concerned.

For my clients in similar positions, I recommend that they retain ownership of creative work until payment is made in full. That way, if they're not paid, they can prohibit their deadbeat client from using the work. To do this, you need to have a written lien on the work, which you would need a lawyer to construct for you. I'm guessing you didn't do this, so your best option right now is to not get in any deeper.