This agreement sets out the For your tokens, have some baseline or early assumption of future token allocations by looking at comparable benchmarks from sources like Cooopahtroopas and Lauren Stephanians tokenomics analysis, Messaris company profile pages, and other recent token launches (Goldfinch, Braintrust, dYdX). www.sec.gov Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. However, when the token warrant is executed during the initial token sale, the investors will be making a transaction with the Token SPV directly, at the rate of the previously determined price or discount. In such cases, classic corporate equity investment documents are also signed in addition to the token sale agreement, namely, the subscription (share purchase) agreement and the shareholders agreement. 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.. On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. 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? Make sure to be clear with the investors on the value of the equity and the tokens together so that you dont end up with the wrong token side letter terms, or delay closing the deal because of misalignment on valuations. Token warrants are typically issued to equity investors in an overarching corporation (for example, popular DeFi protocol UniSwap was built by Uniswap Labs LLC). SAFTs do not Usually, one to two years may pass between the initial fundraising to the time of issuing tokens. PAWN SAFTE (Simple Agreement for Future Tokens or Equity) similar to SAFT, but gives investors equity with the optionality of converting to tokens. Any attorney-client relations are between clients and legal providers only. "_ Protocol _" means software or code developed by the Token Issuer operating through a peer to peer network of computers operating the same software or code and holding an identical copy of a ledger of transactions, to which any Token relates. a Token SPV). While some web3 startups have moved more aggressively into token-based equity, the fundraising ecosystem hasnt changed overnight. in Europe or elsewhere), then they have more flexibility in choosing between the token side letter and the token warrant to sign along with SAFE.. For purposes of this calculation, any SAFE that has not yet converted to equity will be considered to convert at its valuation cap. Given that various types of tokens (utility, security, payment, etc.) SAFTs & Token Warrants What They Are and How They Work 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. 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. Nestor is a Co-founder & Head of Web3 Legal at Legal Nodes. All Tokens distributed to or received by Holder pursuant hereto shall be subject to a mandatory Lockup Period. You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. The number of tokens that will be issued is commensurate with the This, in turn, helps the DevLab (which may be registered in the US as an American company) to avoid any involvement with the process of selling and distributing tokens. If you want your Web3 fundraising to go smoothly and just the way you envision it, Legal Nodes would happily help you customise the template to address your specific fundraising needs.. www.sec.gov A Token company (also referred to as a Token SPV) is a company within a project's legal wrapper that is responsible for the initial token release and distribution. WebEfficient and speed After both stakeholders have signed, the SAFT token warrant agreement can be developed as a smart contract and accomplished automatically. |, Name: ____________________________(please print or type full name) |, Name:(please print or type full name) | WebSAFE + Token Warrants - A combination of a SAFE and a token warrant has become increasingly popular for fundraising in Web3. That means there's no need for founders or in-house counsel to find lawyers in each jurisdiction where a company may be registered or operating. This could influence which token pro-rata right method you negotiate for. | With it, the purchaser pre-pays for tokens that havent been released yet and the company uses that money to develop the tokens. Heres why: Registration of the DevLab outside of the U.S. usually means that the applicable laws will be a bit more flexible and a bit more certain; outside US jurisdiction, the risk of tokens being considered securities tends to be lower and so DevLabs are free to be partially involved in the distribution of tokens. This Warrant may not be exercised if the issuance of the Tokens upon such exercise would constitute a violation of any applicable federal or state laws or other regulations, as determined by the Board of Directors on the advice of counsel. and the type of signatory company youll be using to sign your fundraising documents, youll have a number of different fundraising documents you can choose from. If founders have registered the DevLab outside of the US (i.e. As the token warrant is signed together with the SAFE, the prices set out in the SAFE includes the value of the token warrant, which is also called a token purchase right. As it is a separate entity, the Token SPV can handle these processes, shielding the DevLab from any involvement in the token distribution process. 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. Welcome to Legal Nodes Playbook for Founders. To learn more about how Pulley can help your startup usher in its Web3 future, schedule a call with us today. An equity raise with a token warrant structure means startups can focus on developing their product-market fit in the short term, parking designing a token economy until later, Outlier's Burke said. FTX TOKEN. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. IN WITNESS WHEREOF, the undersigned Holder has executed and delivered the Warrant and this Exercise Notice as of the date set forth below. Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. In some cases, token warrants may even be used in conjunction with SAFEs or other more traditional equity mechanisms. Oops! So the equity and the probability of not launching a token has to be valued accordingly and will be reflected in the token side letter terms. Warrant Choosing a Web3 Fundraising Document in 2023: a Playbook for 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. Item 1.01 Entry into a Material Definitive Agreement. A Token company (also referred to as a Token SPV) is a company within a project's legal wrapper that is responsible for the initial token release and distribution. Having over seven years of legal consulting experience, Nestor loves working with innovative startups and Web3 projects, helping them navigate the regulations and scale on global markets. "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. 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). And, as with stock warrants, token warrants are generally issued to investors, banks, and third-party partners (rather than to employees, consultants, and other service providers).. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) Similar to the SAFE, under the SAFT, an investor, upon occurrence of a Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. Be the first to get your hands on a token sale agreement template by registering your interest here. One key distinction is that a token warrant represents a right, not an obligation, to purchase future tokens. We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. Cryptocurrency Find him on Twitter at @steveglaveski., This site requires JavaScript to run correctly. Cannot retrieve contributors at this time. 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. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. The SAFT and SAFTE (simple agreement for future tokens or equity) have largely fallen out of favor in the United States due to legal risk and violations of securities laws. Issued on ____________, 2022 (the " Issue Date"). Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. A token warrant agreement, commonly referred to as simply a token warrant and also known as a token purchase right, is a document often used by Web3 projects to attract early-stage investments. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. Learn all you need to know to fundraise with SAFTs and get a free SAFT template from Legal Nodes. SAFE as SAFT?: Understanding Simple Agreements for Future This could be done as soon as the Token SPV is incorporated. This is different from token warrants, which will usually be assigned from the DevLab to the Token SPV by the time the tokens are initially issued. The tokens are not a replacement for receiving company shares as an investor its complementary and used alongside the traditional equity agreement and cap table. Automatic vesting ensures that tokens are seamlessly moved to connected wallet addresses upon vesting, and token holders can access advanced views that help them track the projected future value of their tokens. The Company have accounted for SAFE with a token side letter or warrant has become more commonplace. |. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. Emerging Countries. LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. 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. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. A SAFT broadly follows the same principles as a SAFE (Simple Agreement for Future Equity) or, our SAFE equivalent, a Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). 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. (secure agreement for future tokens) is one such mechanism. Basically, its the token equivalent of a warrant for equity, or granting share options. Restrictions on Exercise. District Metals Corp. ; has closed its previously announced brokered private placement financing pursuant to an agency agreement with PI Financial Corp. and Haywood Securities Inc. , raising | March 3, 2023 Once the startup founders have gathered their core team and developed their idea into the Proof of Concept stage, they can begin to attract their first investments, hire new people, and start the journey to develop a fully-fledged product. Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. This Warrant may be exercised any number of times by Holder, prior to the Expiration Date, to provide Holder the opportunity to purchase up to Holder's Portion at each applicable Token Launch, less any Tokens purchased by Holder pursuant to any prior exercise of this Warrant with respect to such Tokens. As for a legal structure, in most cases, founders will have only registered a product development company (DevLab), most likely in one of the IT/IP-friendly countries currently available, like the US state of Delaware, the UK, UAE, Singapore, Estonia and other countries. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. agreement As a condition to each exercise of this Warrant, Holder shall execute a copy of the exercise notice attached hereto as Exhibit 1, confirming and acknowledging that the representations and warranties set forth in Section 6 of this Warrant as they apply to Holder are true and complete as of the date of exercise. A token warrant is a derivative that allows the warrant holder to purchase tokens in the issuing company at a specified price on or before a specified expiration date. Date of Issuance. Other investors prefer the direct alignment with the founders with the company allocation method. To better understand token warrants, lets review them through the lenses of tokenomics and how they relate to another token equity mechanism called a SAFT (Simple Agreement for Future Tokens). The material terms of the TSA are almost the same as those of the SAFT, except that the TSA lacks a description of the conversion event and indicates a clear date of transfer of tokens to investors. as well as tokens. For the avoidance of doubt, in the event of any increase in the Total Network Tokens following a Token Launch, (i) Holder's Portion with respect to such Tokens shall be recalculated to take into account such increase. ETF. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. This certifies that in consideration of payment of the applicable purchase price as set forth below, the party identified on the signature page hereto (the "_ Holder ") is entitled, subject to the terms and conditions of this Warrant, to purchase, at any time prior to the Expiration Date, such Holder's Portion of the Total Network Tokens from [Company Name], a Delaware corporation (the " Company _"). Token Warrant Agreements Free Template and Guide American companies should be very careful about how they participate in the distribution and sale of 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.