Startup Terms Glossary
What is a Price Cap?
When investors give money to startups, they exchange their investment for a piece of equity in the company. Sometimes, investors will buy into a company and will acquire convertible debt. This debt is held until a minimum amount of money is raised or a certain period of time passes. Then, it is converted into equity in the company. A price cap determines the maximum value on the price of a convertible debt before it becomes equity.
Price Cap Examples
Some examples of the benefits of a price cap to investors:
- Example 1. Ensures investors get the highest return when large increases of value occur in a startup
- Example 2. Incentivizes investors to take on riskier investments for a higher return
Check out this article about the concept of a price cap.
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