What are “capped notes”?
Capped notes are convertible notes or SAFEs that include a valuation cap — a ceiling on the valuation at which the investment will convert in the next priced round. The cap protects the early investor by guaranteeing a minimum effective ownership percentage regardless of how high the next round prices. Capped notes are the standard market structure; uncapped notes are the exception.
How the cap works in conversion
If a SAFE has a $5M cap and the next priced round is at $20M pre-money, the SAFE converts at the $5M cap valuation — effectively buying shares at 25% of the priced-round price. Without the cap, the investor would have converted at $20M and received a much smaller stake for the same dollars.
Formula:
Conversion Price = min(Valuation Cap / Fully-Diluted Shares, (1 − Discount) × Round Price)
Cap calibration
- Too low for the company: early investors over-rewarded; founders excessively diluted.
- Too high for the investor: no real protection; the investor takes early-stage risk without the corresponding upside.
- Market norms: seed-stage caps typically run $5-15M for pre-revenue / early traction; cap to ARR multiple is benchmarked at 25-50x for early revenue.
Capped vs. uncapped notes
- Capped (standard): investor has both downside (cap) and upside (discount) protection.
- Uncapped (see uncapped notes): investor relies only on discount; appropriate for strategic or friends-and-family money but rare for institutional VC.
- Cap + Discount: investor gets the better of the two at conversion.
Türk SAFE/note pratiği
Türk startup’larında SAFE veya capped note finansmanları HoldCo seviyesinde uygulanır; Türk OpCo seviyesinde SAFE doğrudan TTK ile uyumlu değildir. Yerel seed turlarında cap’ler tipik olarak 1-5M USD aralığında olur; daha düşük (500k USD altı) cap’ler aile-arkadaş finansmanını sinyaller, çok yüksek cap’ler erken-yatırımcı korumasını zayıflatır.
Do: negotiate the cap based on realistic next-round expectations; document the conversion mechanics clearly to avoid downstream disputes.
Don’t: agree to a cap below your honest sense of next-round valuation just to close — excessive early dilution is hard to reverse.