# Valuation cap

Concept · [Fundraising and equity](https://ecosystem.samcarlton.com/fundraising)

Also called: cap, capped SAFE, discount, conversion discount

A term in a [SAFE](https://ecosystem.samcarlton.com/safe) or [convertible note](https://ecosystem.samcarlton.com/convertible-note) that sets the highest [valuation](https://ecosystem.samcarlton.com/valuation) used to work out how many [shares](https://ecosystem.samcarlton.com/equity) the investor gets when it converts. A lower cap means more shares for the early investor. A 'discount' is a related term that gives the early investor a lower share price than new investors pay.

**For example:** An early investor's [SAFE](https://ecosystem.samcarlton.com/safe) has a cap. The company later raises money at a [valuation](https://ecosystem.samcarlton.com/valuation) above that cap. The early investor's money converts as if the company were worth only the cap, so they get more [shares](https://ecosystem.samcarlton.com/equity) for it.

## Connects to (3)

- [SAFE](https://ecosystem.samcarlton.com/safe): Simple agreement for future equity.
- [Convertible note](https://ecosystem.samcarlton.com/convertible-note): A loan from an investor that is meant to turn into shares later instead of being paid back in cash.
- [Valuation](https://ecosystem.samcarlton.com/valuation): What the company is agreed to be worth for the purpose of an investment.

> This glossary is plain-language orientation, not legal or financial advice. Before you decide on a company structure, a contract, taxes or a fundraising deal, talk with a lawyer or an accountant.

Map view: https://ecosystem.samcarlton.com/valuation-cap