Valuation Cap

A valuation cap sets the maximum valuation at which a SAFE or convertible note converts into equity, protecting early investors from being crushed by a high-priced next round. If the cap is $10M and the next round prices at $30M, the SAFE holder converts as if the company were worth $10M, tripling their effective share count versus new money. On a post-money SAFE, the cap directly fixes the investor's ownership percentage.