Valuation Cap
Definition
The maximum company valuation at which a SAFE or convertible note converts to equity, regardless of the actual valuation at the conversion event. Where the company's pre-money valuation at the qualifying round exceeds the valuation cap, the SAFE converts as if the pre-money valuation were equal to the cap, giving the SAFE holder a lower conversion price and therefore more shares. The valuation cap protects early investors by ensuring they receive a meaningful equity stake even if the company's valuation increases significantly before conversion.
Common Misapplication
The most common misapplication is modeling SAFE conversion using the round pre-money valuation when the round price exceeds the valuation cap. Where the valuation cap is lower than the round price, the cap governs the conversion price. Failing to apply the cap produces a conversion share count that is too low and understates the dilution to existing shareholders.
FFI Standard Reference
This term is defined and applied in Book 3, Section 3.2: The SAFE and Convertible Instrument Standard.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Valuation Cap. https://ffistandard.org/glossary/valuation-cap/. 2026.