Uncapped Notes
Content
Definition
Uncapped Notes are a type of convertible note without a valuation cap, meaning the conversion rate to equity is not fixed and can dilute founders significantly if the company’s valuation increases.
Usage and Context
Uncapped notes are convertible notes without a value limit, which can greatly dilute founders.
Frequently asked questions
- What is an uncapped convertible note? An uncapped convertible note is a type of debt that turns into equity without a maximum value limit, possibly diluting founders if the value goes up.
- What is an uncapped valuation? An uncapped valuation refers to a scenario in a convertible note or SAFE where there is no maximum limit on the company’s valuation for conversion into equity, potentially leading to greater dilution for early investors.
- What is the valuation cap in a convertible note? The valuation cap in a convertible note sets the highest valuation for the note to convert into equity, protecting early investors from too much dilution.
Benefits
Uncapped notes allow for flexible funding but can significantly dilute founder equity.
Conclusion
Uncapped notes provide flexible funding options but can result in significant dilution of founder equity.
