To calculate the Valuation Cap:
\[ VC = PI \times (1 + r)^n \]
Where:
A valuation cap is a term used in startup financing that refers to the maximum valuation at which an investor is willing to invest in a company. It is often used in convertible note financing and seed rounds to protect early-stage investors from excessive dilution. If a startup’s valuation at a subsequent funding round exceeds the cap, the early investor’s stake is calculated based on the cap, not the higher valuation, thus providing them with more shares for their investment.
Let's assume the following values:
Step 1: Use the formula:
\[ VC = 1,000,000 \times (1 + 0.10)^5 = 1,610,510 \]
Step 2: Display the result:
The valuation cap (VC) is \$1,610,510.00.
Let's assume the following values:
Step 1: Use the formula:
\[ VC = 500,000 \times (1 + 0.15)^3 = 759,375 \]
Step 2: Display the result:
The valuation cap (VC) is \$759,375.00.
