Valuation Cap
/ˌvæl.juˈeɪ.ʃən kæp/concept · noun(Valuation Cap)
The maximum company valuation at which a SAFE or convertible note converts to equity — caps the early investor's effective price per share if the next round closes at a much higher valuation.
Real-world examples
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Add my companyAn 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.
