What are uncapped notes?
Uncapped notes are convertible promissory notes that do not include a valuation cap, meaning they convert into equity in the next priced round at whatever price that round sets, without an investor-protective maximum. Uncapped notes are issued primarily when the company has high pricing leverage or when an angel is investing on relationship terms.
From an investor perspective, uncapped notes lack price protection in a strong next round; from a founder perspective, they preserve cap-table flexibility. Uncapped notes typically still include a conversion discount (10–25%) to compensate early investors for early risk.