A valuation cap is one of the key features of a Simple Agreement for Future Equity. It establishes the maximum company valuation at which the SAFE investment can convert into equity. If the startup grows significantly before the next funding round, the investor benefits by converting their investment at the lower capped valuation rather than the higher market valuation. This rewards investors for taking early risks. AngelSchool explains valuation caps in detail, helping both founders and investors understand how they affect ownership percentages and future returns.