Valuation cap
The maximum company valuation at which your SAFE or note converts into equity — it sets a ceiling on the price you pay.
A valuation cap protects early investors from being diluted down to a trivial stake if the company's valuation rises sharply before the SAFE or note converts. It fixes the maximum valuation used to calculate your conversion price, regardless of what the company is actually valued at when the triggering priced round happens.
The lower the cap relative to the eventual round valuation, the better the deal was for the early investor — a $5M cap converting against a $50M round gives roughly 10x the ownership per dollar that a straight $50M-valuation investor gets. This is also why valuation caps are the single most negotiated term on early-stage paper.
Why it matters
A cap is the main lever determining your ownership percentage on a SAFE or note. When comparing two deals, the cap (relative to the company's likely trajectory) matters more than almost any other term on the page.