Notwithstanding the foregoing, "Tokens" shall not include tokens created for testing purposes or any NFTs issued in the ordinary course of business in arms' length transactions. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. A company might issue warrants with the option to purchase future tokens based on each investors equity ownership percentage multiplied by the total token allocation for investors. Agreement as well as tokens. Unlike SAFTs, B = the fair market value of one Token, determined at the time of such net exercise as set forth in Section 2.5(b). Hence, this sale to the investor is also called a pre-sale. Given the shifting nature of regulation in this space, we recommend consulting with your legal counsel before moving forward with any type of token-based equity.. Supporting. WebSAFE + Token Warrants - A combination of a SAFE and a token warrant has become increasingly popular for fundraising in Web3. This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests. The token purchase right is the right to buy tokens in the future. It then makes transfers to investors who hold token side letters, as well as other core contributors to the project ecosystem such as developers, advisors, etc. Oftentimes, a projects tokenomics model develops over time, and it can be difficult to predict the future value of an individual token so early in a projects life. Scenario 1: 20% allocation of tokens for the company and insiders (founders, employees, company treasury), Scenario 2: 60% allocation of tokens for the company and insiders (founders, employees, company treasury). "_ Transfer " means: (x) the direct or indirect sale, assignment, delegation, pledge, charge, lending, hypothecation, creation of a swap or other derivative with respect to, or transfer or disposition of, any Token or any interest, right, claim, obligation or liability with respect to any Token; or (y) a Holder entering into or becoming subject to a contract, agreement or understanding, written or oral, contemplating or relating to any of the foregoing. The Token Warrant will be for companies who might wish to issue tokens to investors as a sweetener for making an equity investment in a funding round, or perhaps to an advisor in return for services. To read more about the SAFT, how to use it, and to get a free SAFT template from Legal Nodes, visit this page. The amount of tokens the investor can receive via the side letter or warrant is proportional to the equity granted via the SAFE. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. "_ Fully Diluted Percentage _" means, with respect to a Holder, the quotient obtained by dividing (a) the total number of Common Stock then issuable (directly or indirectly) upon the conversion of Preferred Stock of the Company, as if converted, by (b) the total Common Stock of the Company then outstanding (assuming (i) full conversion of all Preferred Stock then outstanding, and treating for this purpose all Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted and (ii) without duplication, issuance of all shares reserved but unissued under the Company's equity incentive plan(s)). You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. Web3 startups can use funds from the sale of SAFT to develop their project, mint their tokens, and issue their tokens to investors who have an expectation that there will be a secondary market to sell these tokens to. We're also going to explore when it may be best to use token warrants instead of token side letters, and how a Token SPV influences the fundraising process. But, as with all things crypto (and equity, for that matter), you wont want to dive in blindly. (please print or type complete name of entity) | SAFE Agreement: How They Work, 5 Important Terms (2022) Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. For early-stage crypto companies, theres a new fundraising document called the token side letter, that is being used to raise capital from accredited and institutional investors. The fully diluted supply and conversion rate method gives investors a fixed token supply guarantee based on their equity ownership, while the company allocation method is subject to future token allocation decisions by the company. in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? THIS WARRANT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO A QUALIFIED OFFERING STATEMENT PURSUANT TO REGULATION A OF THE SECURITIES ACT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. Understand how much negotiating leverage you have when fundraising, and whether you need founder-friendly terms or investor-preferred terms for the token side letter to close the deal. In the event that legal counsel to the Company advises the Company that it is necessary or advisable for regulatory reasons, Holder shall also be required to deliver, as a condition to exercise, an accredited investor verification letter from a qualified third party verifying that Holder is an "accredited investor" within the meaning of Rule 501 of the Securities Act (as defined above). As with any legal agreement, the token warrant comprises a number of terms and conditions. Get started with Legal Nodes by downloading the free template on this page or requesting a demo to find out how we can help you solve your legal needs. WebA general form of warrant to be used in connection with the financing of a private company, including in a private equity or venture capital transaction. Warrant | To learn more about how Pulley can help your startup usher in its Web3 future, schedule a call with us today. As it is a separate entity, the Token SPV can handle these processes, shielding the DevLab from any involvement in the token distribution process. The transaction contemplates an enterprise value of approximately $45 million for Jet Token, and additional earnout warrants with a Black Scholes valuation of $60 million. Instead, our Virtual Legal Officers (VLOs) source and manage all the different legal specialists. All Rights Reserved. This eradicates the need for the agreement to be validated by a lawyer. Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. Warrant A SAFT, on the other hand, essentially represents a promise on the companys part to deliver future tokens to the investor at a later date., Many companies hoped the SAFT framework would serve as a means to issue utility tokens to investors without having to register them as securities. DISCLOSURE: This publication contains general information only and LiquiFi, Inc. is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. "_ Insider Reserved Percentage _" means the percentage of the Total Network Tokens, in the aggregate, reserved for issuance to Insiders in connection with the applicable Token Launch. (In our template, available to download below, we chose to go with the pro-rata formula based on contributors allocation, meaning that the base for the calculation is not the entire token pool, but the part that is used for distribution to the core contributors. That being said, it is not the only way to structure the conversion formula, we chose this method as it is an industry practice we think will be most helpful to users of the document, as per our explanation below), So, if your tokenomics is finalised, meaning, the price of the token at the time of its issue and the hard cap is already determined, you will be ready to specify in the token warrant details about the number of tokens available to the investors and their specific price. But what happens when youre investing not in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? WebIts not just vanilla SAFEs anymore, its all manner of complicated token and warrant agreements. Foreword: Thank you to the Alliance DAO team and Lindsay for their insights and help in writing this article. For purposes of the calculation in Section 2.5(a), the fair market value of one Token shall be determined by the Company's Board of Directors in good faith. 4. during the twelve months following the end-date of the period described in the immediately preceding clause "(c)", 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of such end-date. Multi-Signature Support. In the event that a Token Launch has occurred, then the Company shall provide notice to Holder no later than 30 days prior to the Expiration Date, which notice shall specify all Tokens that have been issued by a Token Issuer to such Holder during the term of the Warrant and the maximum number of Total Network Tokens issuable under this Warrant to such Holder. Warrant (General Form) | Practical Law In order to determine the best approach of how to structure it, it is necessary to assess the readiness of the projects tokenomics. "_ Warrant Exercise Price _" means (a) $1,000 (in the aggregate, to purchase that number of Tokens equal to Holder's Portion) for the initial exercise of the Warrant, and (b) $500.00 (in the aggregate, to purchase that number of Tokens equal to that portion of Holder's Portion remaining to be exercised) for each exercise of the Warrant thereafter. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. Additionally, if the DevLab also plans to issue rights to tokens to its investors, this is best done via a token warrant (and not Token Side Letter) because of the following 3 reasons:. "_ Affiliate _" means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person, where "control" is defined as directly or indirectly possessing the power to direct or cause the direction of the management and policies of the Affiliate, whether through ownership of voting securities, by contract or otherwise. Investors mint warrant tokens when they deposit capital into the aggregate pool. If the token economics of the project is not finalised, the way to address it is to agree on the discount, which will apply to the investors purchase. Warrant Tokens Similarly, a SAFT is an agreement in which an investor pays money upfront for the right to own a certain number of tokens once the network is completed., SAFTs act somewhat like token warrants, in the sense that both entitle the holder to future tokens. The token side letter provides an additional advantage for investors, as no additional payments are required to receive tokens. is ongoing, then for the purposes of Web3 fundraising, founders should consider the private token sale agreement (TSA) as a fundraising document. WebPublic Auction: "03/07/2023 COINS/STOCK CERTIFICATES/RELATED ITEMS" by Jeff Rich Auction Service. These equity types generally allow investors in web3 startups to receive a certain number of tokens commensurate with the size of their investment.. Agreement Rule 2 does not apply when replying to this stickied comment.. Rule 2 does apply throughout the rest of this thread.. What this means: Please keep any "meta" In summary, it is also worth noting that when a SAFT is used as a tool to attract investment for a Web3 startup, it should be used in conjunction with three additional tools: If any of these three criteria are missing, Web3 founders may wish to consider the SAFE + token warrant/token side letter option described above. At this stage, founders wont usually have a detailed White Paper with developed tokenomics, or any kind of token distribution plan, although these steps may have been preliminarily mapped out in the startup's Web3 roadmap. a Token SPV). It gives both startups and investors optionality. If an early investor exercises a token warrant that results in the minting of a huge number of new tokens (and their subsequent flooding of the marketplace), the immediate supply may outstrip the demand and devalue the token. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. Here's an easy flow to use to figure out which option may work best for your project.. If they are on the stricter side or if there is a high risk of regulatory uncertainty, such as in the U.S., it is probably best to proceed with the token warrant.. We also offer a number of tools and features with employees and other token holders in mind. February 28 business combination with Jet Token Inc. (Jet), a Delaware based company. Consult with your legal counsel on whether the SAFT or SAFTE is appropriate for your fundraising. Notice of Expiration. The number of tokens that will be issued is commensurate with the 1 for the offer, 1 for the agreement outlining equity and token allocations. | WebAs part of equity financing agreements that took place in 2018, the Company has obligated to issue to the investors a number of INX tokens that will be determined pursuant to the results of the Offering. When we say tokens, were referring broadly to blockchain-based digital assets. You will have: To learn more about tokenomics and how it influences the legal structure of your Web3 project, read more in our dedicated guide on tokenomics. SEFtoken: How to Launch a Digital Warrant Offering - Medium Fundraising | Celo Documentation The involvement of the DevLab in token distribution often occurs after the Token SPV issues tokens, and reserves a part of the tokens for key contributors (founders, advisors, team) and investors, subsequently transferring this pool to the DevLab. The regulatory landscape in the US is still under development, which causes some regulatory uncertainty, particularly concerning the legal status of tokens in the U.S., as well as the high risk of tokens being considered as securities. SEFToken Inc., started the new year by announcing a new form of tokenized instrument a covered warrant. A covered warrant is an instrument, similar to an option, that gives the holder the right to buy or sell the underlying security at a certain price, up until a predetermined date. Cryptocurrency Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. Disclaimer: the information in this guide is provided for informational purposes only. How do you know if your tokenomics is ready? Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. As a part of this process, investors are also pricing the equity valuation in a scenario where there is no token launch to make sure that their investment is protected. The key differences between the two are that the token side letter gives founders more flexibility in terms of whether they will issue tokens or not and what the token price would be. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors.