Valuation cap
The maximum valuation at which a SAFE or convertible note will convert at the next priced round.
| Pre-seed | $3M–$8M, often paired with a discount |
|---|---|
| Seed | $5M–$15M, typically with no discount or 20% discount |
| Bridge | Tied to a multiple of the prior round, e.g. 1.5x |
| Variation | Cap only, discount only, cap and discount (most common), MFN |
How the cap works at conversion
Imagine an investor puts $500,000 into a SAFE with a $5M cap. The next priced round happens at a $20M pre-money valuation. Without a cap, the SAFE would convert at the priced-round price, giving the investor 2.5% of the post-money. With the $5M cap, the SAFE converts as if the corporation were worth $5M at conversion: the investor receives $500,000 / $5M = 10% of the post-money.
The cap is therefore a ceiling on valuation upside before conversion. The lower the cap, the more shares the early investor receives, and the more dilutive the SAFE is to the founders.
Cap, discount, or both
SAFEs and convertible notes commonly include:
- Cap only. The simplest form. Common in early seed deals where the investor wants protection only against valuation upside.
- Discount only. Less common today. The investor receives a fixed percentage (10–25%) off the priced-round price, but no cap on valuation.
- Cap and discount. The most common form for priced investors. The investor converts at the more favorable of the cap and the discount.
- MFN (most favoured nation). The investor has neither a cap nor a discount, but is entitled to amend their SAFE to match the terms of any later SAFE issued on more favourable terms.
How to set the cap
The cap is the most negotiated term in any SAFE or note deal. Founders push for higher caps (less dilution). Investors push for lower caps (more upside). The market range varies with stage:
- Pre-seed: $3M–$8M typical caps for first-time founders, higher for experienced founders
- Seed: $6M–$15M typical caps depending on traction
- Bridge: typically 1.0x to 1.5x the prior round's post-money
Caps below market suggest desperation or weak terms. Caps far above market may simply not get done, because investors will not take the dilution risk without protection.
Octelligence captures the cap, discount, and conversion mechanics of every SAFE and convertible note on the cap table. Scenario modelling shows what each instrument converts to at a range of priced-round valuations.
See cap table scenariosScenario modeling across SAFEs and notes, with batch conversion at the round.