We are first time entrepreneurs and have a pre-revenue tech startup. We’re currently raising our first round of funding (pre-seed you could call it), and we’ve received some decent interest. A VC wants to know what cap we are raising at. What does this mean and how would we know? Additional information: We have a prototype and we are not incorporated.
"Cap" is applicable only if you are raising via a convertible note. If you are doing an equity round (issuing new stock (called a primary, is most normal) or selling existing stock (called a secondary) then you wouldn't talk about a cap but a "valuation" instead (pre or post money).
In that context a cap is short for a valuation cap, meaning the highest possible valuation that will be used to calculate the conversion of the note to stock during the next fundraise in which stock is issued.
A note is like a promise to give you stock in the future in exchange for your money now.
Answered 6 years ago
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