Price & valuation
Valuation cap
Also called Cap
The maximum valuation at which your SAFE or convertible note will convert into shares, no matter how high the company's next round is priced.
In plain English
A cap is a ceiling on the price you pay. If you invest on a note or SAFE with a $6m cap and the company later raises at $30m, your money converts as though the company were worth $6m — so you buy five times as many shares as an investor arriving at the priced round. If the company raises at $4m instead, the cap is irrelevant and you convert at the lower actual price.
The cap exists because you took risk earlier. Between your cheque and the priced round the company hires, ships and finds customers, and the resulting increase in value was funded partly by you. Without a cap you would pay the post-traction price for a pre-traction risk, which is a deal no informed investor makes.
Setting the number is more art than analysis. At the earliest stage there is nothing to value — no revenue, sometimes no product — so the cap is negotiated against comparable deals in the same market and sector, the founders' track record, and how competitive the round is. A cap that is low relative to the eventual round is the single largest driver of a good angel outcome; a cap set too high converts a promising company into a mediocre investment.
Caps are not valuations, and founders who describe them as such are usually being optimistic rather than dishonest. A cap is a conversion mechanic. The company has not been valued at the cap by anyone; it is simply the highest price at which you have agreed to buy.
What it means for your cheque
The cap is the term where a small cheque has the most leverage and uses it least. Angels routinely spend an hour on whether the founders are impressive and thirty seconds on whether $8m is a sensible cap for a pre-launch company — when the second question determines the return and the first only determines whether there is one.
A useful discipline: before agreeing a cap, write down the exit value at which you would make 10×, given the dilution you expect. At a $6m cap with roughly 50% cumulative dilution, that requires an exit north of $120m. If you cannot tell a plausible story about the company reaching that number, the cap is too high regardless of how good the founders are.
Do the arithmetic
The same $50,000 at three different caps
Three angels each invest $50,000 on a SAFE. The company later raises at a $40m pre-money valuation. Only the cap differs.
| Angel A — $5m cap | $50,000 ÷ $5m = 1.00% of the company |
|---|---|
| Angel B — $10m cap | $50,000 ÷ $10m = 0.50% |
| Angel C — $20m cap | $50,000 ÷ $20m = 0.25% |
| If the company later exits at $400m | |
| Angel A receives | about $4.0m before later dilution |
| Angel B receives | about $2.0m |
| Angel C receives | about $1.0m |
Same company, same cheque, same exit — a 4× difference in outcome, decided in a single negotiation about one number. Nothing else on this site moves the result that much.
At the table
What to negotiate
- Benchmark against real comparables in that country and sector, not against San Francisco. A $12m cap that is normal in California is aggressive in Madrid, Bogotá or Kuala Lumpur.
- Establish whether the cap is pre-money or post-money — the same headline number means different ownership.
- Ask what caps earlier investors received. A founder raising at $10m three months after a friends-and-family round at $3m needs to explain what changed.
- If the cap is non-negotiable, ask for a discount as well. The two are cumulative in the sense that you convert on whichever is better.
- Work out your required exit value at the proposed cap before you agree to it, not after.
Around the world
How this differs by market
Caps at pre-seed commonly run from $5m to $15m post-money, and considerably higher in AI and in the Bay Area. Ask for recent comparables rather than trusting a range.
LATAMTypically lower than US equivalents for similar traction, though Brazilian and Mexican fintech has narrowed the gap sharply.
EUGenerally more conservative than the US at the same stage, with London the most expensive market and the Nordics and Iberia meaningfully cheaper.
APACEnormously variable — Singapore and Australia price close to Western norms, while much of South-East Asia and India price well below them.
Valuation cap: common questions
Is the valuation cap the company's valuation?
What if the next round prices below my cap?
How do I know whether a cap is fair?
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