What is considered a fair valuation cap should for seed round convertible debt should be viewed from similar deals and from a startup’s internal considerations in that will a particular valuation cap will be acceptable in the context of the startup’s strategic goal. The valuation caps Gil Silberman presents above are a realistic presentation of a standard terms and therefore fair terms. I would take this assessment one step further and emphasize that the most attractive feature of valuation caps on convertible debt is that it allows flexibility for both investors and the startup and can create conditions under which both parties can negotiate the terms of the cap, which presumably would lead to a more fair outcome.
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