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Dictionary by pitch.dog
Valuation & conversion mechanics · Core

Valuation cap

Also called: cap

ELI5

A ceiling used to calculate how many shares an early investor receives.

Used in conversation

“The SAFE has a twelve-million-dollar valuation cap.”

Definition

A conversion term that sets a maximum company valuation for calculating the price at which a convertible instrument turns into equity.

Here “Valuation cap” means: A conversion term that sets a maximum company valuation for calculating the price at which a convertible instrument turns into equity.

Pitch context

You will see “Valuation cap” in fundraising decks, data rooms, term sheets and investor conversations when the discussion reaches valuation & conversion mechanics.

Why it matters: In valuation & conversion mechanics, a loose definition can change rights, obligations, approval, disclosure or enforceability.

Caution

Meaning, enforceability and required process vary by jurisdiction and agreement; this definition is not legal advice.

Connected terms

  • Pre-money valuationA valuation cap governs conversion economics in a convertible instrument; a pre-money valuation prices an equity financing before new money.
  • CeilingThe search label “cap” can route to both entries.
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Sources & evidence · 5

Direct term-level sources and supporting source families.