A “valuation cap” entitles note holders to convert the outstanding balance on the note into shares of stock at the lower of (i) the valuation cap or (ii) the price per share in a qualified financing. Valuation cap’s are used in cases of a convertible debt and SAFE rounds that allows Investors to invest into a debt instrument or SAFE, which will later convert into equity of a company.
Read more: https://www.dwt.com/blogs/startup-law-blog/2020/07/what-is-a-valuation-cap