The maximum effective valuation at which a SAFE or Convertible Note will convert into equity, protecting early investors if the company's value skyrockets before the next round.
Why it matters: The cap ensures early investors get a better price per share than later investors to compensate for taking early risk.
In practice: An investor holds a SAFE with a $10M cap. The startup raises a Series A at a $20M valuation. The early investor gets shares priced as if the valuation was only $10M, effectively getting them half-price.