valuation cap

Definition

The maximum valuation at which a convertible note or SAFE will convert to equity—a safety net for early investors betting on you when you were nobody. The lower the cap, the more expensive your desperation was.

Example Usage

The angel investors got in with a $5M valuation cap, so when we raised our Series A at $30M, they made out like bandits.

Origin

Emerged with convertible note financing in the 1990s, standardized with SAFE documentation in 2013

Fun Fact

Some founders have been shocked to discover that multiple SAFEs with different caps can create a complicated mess of conversion prices that dilute them far more than expected.

Source: Y Combinator and convertible instrument documentation

Related Terms

Beginner

founder dilution

The reduction in founders' ownership percentage that occurs each time the company raises money or issues new equity. It's the slow, inevitable erosion of ownership that founders signed up for when they took outside capital.

🚀 Startup / VC

Intermediate

vesting acceleration

Speeding up the vesting schedule of stock options, typically triggered by acquisition or termination. It's the consolation prize when your startup gets acquired and you're suddenly unemployed.

🚀 Startup / VC

Beginner

general partner

The VC who actually makes investment decisions and sits on boards, bearing unlimited liability but collecting management fees and carried interest. The person founders pitch to, hoping they're in a good mood.

🚀 Startup / VC

Beginner

missionary founder

An entrepreneur driven primarily by solving a problem or advancing a cause rather than financial gain. They're the idealists who actually believe their mission statement.

🚀 Startup / VC

Beginner

limited partner

The actual money behind venture capital—pension funds, endowments, and rich people who give VCs money to invest and hope they know what they're doing. They're 'limited' because they can't tell the GP how to do their job.

🚀 Startup / VC

Intermediate

deployment pace

The speed at which a VC fund invests its committed capital. Deploy too fast and you look desperate; too slow and your LPs wonder if you can actually find deals.

🚀 Startup / VC

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