A valuation cap sets the highest company value at which an early investment, such as a SAFE, converts into shares, so the early investor shares in the gain before the next priced round.
What the video says
In venture capital, an early check can buy shares at half the next round's price. It's the valuation cap. Say an investor puts one million into a startup through a SAFE. No price is set yet. It turns into shares at the next round. But the deal has a cap of ten million. A year later, new investors value it at twenty million. The early money converts as if it were worth ten. Twenty over ten is two. Twice the shares, per dollar. So why do investors care? The cap rewards the risk of going first. Go early. Pay less.
A simple example with round numbers, not advice. Terms vary by fund.
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