A valuation cap is the maximum company valuation at which a SAFE or convertible note turns into equity, no matter how high the priced round's valuation actually lands.
Key takeaways
A valuation cap is the maximum company valuation at which a SAFE or convertible note turns into equity, no matter how high the priced round's valuation actually lands. It rewards early investors for taking early risk: if you raise your next round above the cap, their money converts at the lower cap price and buys more shares.
The cap is the single most negotiated term on a SAFE, because it sets what your early money effectively pays per share. A low cap is founder-unfriendly, it converts into a bigger ownership chunk and more dilution when the priced round arrives. Model how stacked SAFEs at different caps convert before you sign the next one.