What is a valuation cap on a SAFE or note?
A valuation cap is the maximum company valuation at which a SAFE or convertible note converts into shares, whatever the next round's actual price. If the company later raises at a valuation above the cap, the early investor converts as if the valuation were the cap — receiving more shares per dollar than the new investors.
The cap is the de facto price of most early-stage deals: a $10M-cap SAFE is, economically, a bet that the company is worth no more than $10M today. Caps and discounts can coexist; the investor converts at whichever is more favorable.