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Valuation cap

The maximum valuation at which a SAFE or convertible note converts into equity.

Why it matters

A lower cap gives the early investor more shares for the same money. Caps are the single most consequential number on a SAFE, and they compound when you sign several.

A worked example

A $500K SAFE with a $5M cap converts as if the company were worth $5M, giving roughly 10%, even if the priced round happens at $20M.

What is typical

Caps rise as the company de-risks. Investors will ask what your earlier caps were, so keep them consistent and defensible.

Related terms

SAFE

Simple Agreement for Future Equity. An investor gives you money now in exchange for shares later, when a priced round happens.

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Discount

A percentage reduction on the priced round share price, given to early money as compensation for earlier risk.

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Convertible note

Debt that converts into equity at a future priced round.

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Run your raise on this

VCTerminal models these terms on your real cap table, so you can see what a term sheet pays you before you sign it.

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