Justifying the Valuation Cap Amount in Your Convertible Note

convertible note valuation capIn a previous article I explained what convertible notes are and when they are commonly used (see article titled Convertible Note Basics).  Now I’d like to dive into one of the most controversial terms in many convertible notes – the valuation cap (aka – “the cap”).  I say “controversial” in the context of leading to debate/negotiation between the startup and the investors.  Rarely is the interest rate or term length debated.  But a cap always seems to get attention.  You’ll want to understand the basics about caps before reading the rest of this article (see article titled Convertible Note Basics).

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