Fundraising
Valuation cap
A valuation cap is the maximum company valuation at which a SAFE or convertible note converts into equity, regardless of the actual valuation in the priced round. A cap protects early investors by guaranteeing them a minimum ownership percentage for their investment.
In plain terms: The ceiling that decides how many shares an early investor gets.
Why it matters
The single most consequential term in an early instrument. A low cap on a round that later prices high converts into substantially more equity than founders anticipated, and the effect compounds across multiple instruments.
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