Raising money · A term for founders abroad
What is a valuation cap?
The highest company valuation at which a SAFE converts, so an early investor's shares are priced at no more than the cap.
Checked against the IRS's instructions and the states' own rules. Reviewed by Saais Patel, compliance reviewer.
Term 101 of 105 in the glossary, filed under V.Y Combinator: the post-money SAFE
Valuation cap, for a founder abroad.
A valuation cap protects an early investor on a SAFE: when the company raises a priced round, the SAFE converts as if the company were worth no more than the cap, even if the round values it higher. On Y Combinator's post-money SAFE, the cap also fixes the investor's share when it's signed.
$100,000 on a $5 million post-money cap is 2% of the company, before the round that converts it. Several SAFEs with low caps can add up to more of the company than each looked like alone, so add them up before signing the next.
Sources: Y Combinator: the post-money SAFE.
Read next · guide · 3 minSAFEs explained: how startups raise before a priced round, and why they need a corporationWhat founders ask next.
- Can a SAFE have a cap and a discount?
- Y Combinator's post-money forms use one or the other, not both; a third has neither, with a most-favoured-nation clause.
03 · See also
- Raising moneySAFEAn investment contract, published by Y Combinator, where an investor pays now for shares issued at a later priced round; used by US corporations.Read the term
- Raising moneyPost-money valuationA company's value including the new money just invested; on a post-money SAFE, the cap is a post-money figure, so ownership is fixed at signing.Read the term
- Raising moneyCap tableThe record of who owns what share of a company, including options, SAFEs and other convertible instruments; investors read it first.Read the term
- Raising money83(b) electionA founder's choice to be taxed on restricted stock when it's granted rather than as it vests, filed with the IRS within 30 days, with no extension.Read the term
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