The ceiling valuation at which a SAFE or convertible note converts to equity, protecting the early investor's ownership if the next round prices much higher.
An investor puts $100K on a $10M cap. The next round prices the company at $40M. WITHOUT the cap, they'd own $100K/$40M = 0.25%. WITH the $10M cap, they convert at the cap: $100K/$10M = 1%. The cap delivers 4x the ownership.
