Definition
What is valuation cap?
A valuation cap is the maximum valuation at which a SAFE or convertible note converts into shares. If the next round is priced above the cap, early investors convert as if it were priced at the cap, so they get more shares.
The cap rewards early investors for taking more risk. A lower cap means more ownership for the investor and more dilution for founders.
General information, not legal, tax or investment advice.