Valuation Cap
The maximum valuation at which a SAFE or note converts, protecting early investors from a high priced round.
A valuation cap sets a ceiling on the price at which early money converts to equity. An investor on a $5M cap whose company raises at $20M converts as though the valuation were $5M, taking four times the shares their cash would otherwise buy.
The cap is the main economic term in most SAFE negotiations. It is not a valuation — it is a ceiling, and agreeing one does not mean the company is worth that today.
Caps set too low become expensive at the priced round, when converting SAFEs consume a large share of the cap table before new investors arrive. Model the conversion at your target round size before agreeing one.