Valuation cap

A valuation cap sets a ceiling on the price an investor pays per share when their SAFE or note converts, regardless of how high the company's valuation climbs by the time a priced round happens. If the company takes off, the cap guarantees the early investor a better (lower) conversion price than new investors are paying — compensation for the risk they took when the outcome was uncertain.

Cap vs. no cap

An uncapped SAFE has no price ceiling; absent a discount, it converts at whatever price the priced round sets, exactly like the new money. Founders sometimes prefer uncapped SAFEs for very early or small checks because they don't lock in a valuation before there's much to value — but almost every institutional SAFE check today carries a cap.

How the cap resolves against the discount

Nearly every SAFE also carries a discount rate as a backstop. At conversion, the instrument uses whichever term is more favorable to the investor: the cap-implied price/shares, or the discount-implied price/shares. Foundily's engine computes both and takes the greater share count (equivalently, the lower price) automatically — you set the cap and discount, and the calculator tells you which one actually bound.

Picking a cap founders can live with

A cap set too low relative to where the company is actually heading hands away more ownership than the raise size suggests — see the moic and dilution entries for how that compounds through subsequent rounds. A cap set too high defeats the point of offering one. Most founders anchor the cap to a believable near-term post-money valuation and sanity-check the resulting ownership percentage (investment ÷ cap for a post-money SAFE) before signing.