The valuation cap on your SAFE or note determines your effective ownership. Here's how caps work and how to negotiate one that isn't punishing later.
"Uncapped SAFE" and "$10M cap SAFE" sound like small distinctions. They aren't. The cap is the ceiling — investors convert at the lower of the cap or the next round's valuation. Getting the cap wrong bites you at the priced round, not now.
You raise $500K on a $5M post-money cap SAFE. At the next priced round (say $20M pre-money), the SAFE converts as if the company were worth $5M — meaning the investor gets 10% of the company for their $500K, not 2.5%. The cap is the ceiling on valuation for conversion.
Post-money SAFE (YC's 2018+ default) fixes the dilution to the SAFE holder. Pre-money SAFEs (original YC) don't — dilution shifts if more SAFEs are added. For founders, post-money is easier to model and more transparent. That's the current standard.
The cap is the valuation you're implicitly saying the company will be worth or more at the next round. Set it too high and you may not raise on those terms later (the priced round happens below cap and investors don't get the discount they expected — awkward, sometimes contentious).
Early investors on higher caps can get an MFN clause: if you later issue SAFEs with better terms (lower cap, discount), the earlier investor gets that better term retroactively. This protects them from being disadvantaged and is standard for lead angels.
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