valuation floor

Price Protection

Investors use these limits to guarantee a minimum amount of equity for their capital regardless of how low the next round price goes.

Value Base

Calculations for the issuance of new shares or the conversion of debt into equity rely on this fixed number when the actual valuation is lower. This creates a disconnect between the market price and the internal cap table math. The hours spent modeling these scenarios are a necessary cost for the founder to understand the potential dilution.

Conversion Limit

Boundary of the floor stops the downward adjustment of the share price at a specific level. This protection prevents the share count from expanding to an unmanageable size during a period of financial distress. The trade off for this protection is the added complexity of the capital structure and the capacity needed to manage investor expectations.

Floor levels represent the last line of defense for the value of early stage capital.