Raising money
Valuation cap
A valuation cap is the highest company value a SAFE (simple agreement for future equity) will use when it turns into shares, even if your next round is priced higher.
Also called SAFE cap
A convertible note (a loan that turns into shares) uses caps the same way. A lower cap gives the early investor more shares for the same money. Below the cap, a discount (a lower price than new investors pay), if there is one, decides the share count.
This is not legal or tax advice, check with a lawyer or accountant.
When this shows up
Example, not a real founder: two angel investors, people investing their own money, offer the same amount on SAFEs with different caps. The amounts match, so the offers look equal. When the SAFEs convert, the one with the lower cap ends up owning noticeably more of your company.
What to do next
Write each cap you have agreed or been offered next to its amount. Then calculate what share each investor would own if your next round priced above all of them.