Valuation Cap
The maximum company valuation at which a SAFE or convertible note will convert into equity.
A valuation cap sets a ceiling on the price at which a SAFE or note converts into shares, protecting early investors from being diluted down to a tiny stake if the company's valuation rises sharply before the next priced round. If the actual round is priced above the cap, the SAFE still converts at the (lower) cap price, giving early investors a better price per share than new investors in that round.
The cap is the single most negotiated number on an early-stage SAFE, because it directly determines how much of the company an investor ends up owning; founders and investors often go back and forth on cap level far more than on any other term in a seed deal.
SAFE conversion price = valuation cap / fully diluted shares outstanding (capped-side conversion)An investor puts $200,000 into a SAFE with a $8M cap. If the next round prices the company at $8M or lower, the SAFE converts at the round price; if the round prices at $20M, the SAFE still converts as if the company were worth $8M, giving the investor roughly 2.5x more shares than a new investor buying in at $20M.
Set your cap deliberately, not aspirationally — a cap set far above what you can credibly support at the next round invites a painful conversion-price renegotiation or an awkward down-round optics problem later.
What happens if the priced round comes in below the SAFE's cap?
The SAFE converts at the actual round price, which is more favorable to the company (and less favorable to the SAFE holder) than converting at the cap.
Related terms
Run the numbers yourself: dilution, SAFE conversion, and fund-returner calculators.