A conversion price cap is used to determine the maximum price per share at which convertible notes or SAFEs convert into capital stock at the time of the financing resulting in the conversion, regardless of the valuation agreed to by the company and the new equity investors.

It is important to note that the conversion price cap is only one of many variables that can have a significant impact on the ownership position of investors following the financing resulting in the conversion of notes and/or SAFEs. Companies should be careful not to lose sight of the impact that the conversion price cap might have at the time of a future fundraise.