Definition
A valuation cap sets a maximum valuation used when converting a SAFE or convertible note into equity in a priced round. A lower cap generally means a lower conversion price and more shares for the investor.
How to use it
- Cap price is often modeled as cap / fully diluted shares at conversion (simplified).
- Caps matter most when the priced round valuation is meaningfully higher than the cap.
Common mistakes
- Using non-fully diluted share counts when computing cap price per share.
- Assuming cap mechanics are identical across SAFEs and notes (terms vary).
Measured as
Measure Valuation Cap with the same date, unit basis, and accounting or policy definitions used in the rest of your model.
Misused when
- Using non-fully diluted share counts when computing cap price per share.
- Assuming cap mechanics are identical across SAFEs and notes (terms vary).
Operator takeaway
- Cap price is often modeled as cap / fully diluted shares at conversion (simplified).
- Caps matter most when the priced round valuation is meaningfully higher than the cap.
- Tie Valuation Cap to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Quantify the impact with SAFE Conversion Calculator if you need to turn the definition into an operating assumption.
- Read SAFE conversion guide: cap vs discount and dilution if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
Where to use this on MetricKit
Calculators
- SAFE Conversion Calculator: Estimate how a SAFE converts in a priced round using a valuation cap and/or discount (simplified).
- Convertible Note Conversion Calculator: Estimate how a convertible note converts in a priced round with interest plus a valuation cap and/or discount (simplified).
Guides
- SAFE conversion guide: cap vs discount and dilution: How SAFE conversion works in a priced round, when the cap or discount wins, and how pre- vs post-money terms change dilution.
- Convertible note: interest, cap/discount, and conversion basics: A practical guide to convertible notes: how interest accrues, how caps and discounts affect conversion price, and common modeling pitfalls.
- Fundraising & valuation hub: pre/post-money, SAFEs, notes, and liquidation prefs: A practical hub for startup fundraising and valuation basics: pre/post-money, pro rata, option pool shuffle, SAFE/note conversion, and liquidation preference outcomes.