Similarly, the note's valuation cap establishes a maximum value of the company at that future financing, which also potentially allows noteholders to convert their investment into equity at a more favorable price per share. (seedinvest.com)
Importantly, a valuation cap and a discount are mutually exclusive conversion features thus can not be applied simultaneously. (microventures.com)
To compensate convertible note holders for the additional risk assumed with investing at an early stage, most convertible notes feature a conversion price below that of the subsequent financing round through the use of a valuation cap or a discount on the purchase price. (microventures.com)