For the avoidance of doubt, the Lockup Period and Transfer Restrictions shall not apply to any Tokens received by any Holder as a reward for staking Tokens on the Protocol or any network or protocol pursuant to the proof-of-stake protocol included in the Protocol. information about vesting, lock-ups and other encumbrances on the investor's tokens, which are important for the successful operation of the project's tokenomics. * It may be hard to determine the future tokenomics or token utility model as an early-stage company without product-market fit or a large community of users. Blockchain technology has enabled a number of new equity types that may change the future face of startup financing. 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. All the information in this guide is for educational purposes only. 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. WebSAFE agreements, also known as simple agreements for future equity and SAFE notes , are legal contracts that startups use to raise seed financing capital and similar to a warrant. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. B = the fair market value of one Token, determined at the time of such net exercise as set forth in Section 2.5(b). The number of tokens that they will be able to buy with the discounted price is then calculated pro-rata to the equity ownership of the investor. One key distinction is that a token warrant represents a right, not an obligation, to purchase future tokens. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. 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. Item 1.01 Entry into a Material Definitive Agreement. Their incentive is to get as much of the tokens for the amount of capital invested. "_ Common Stock _" means the Company's Common Stock, par value [$0.00001] per share. "_ Total Network Tokens _" means the total number of Tokens ever to be issued on (i) the Protocol, or (ii) any Token Issuer's network or protocol. A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. WebToken Warrants. https://lnkd.in/gTadru7d Decide which token pro-rata right method you want to use by comparing outcomes with your token allocation and the three types of token pro-rata right methods. This could influence which token pro-rata right method you negotiate for. (please print or type complete name of entity) | This space will no doubt evolve over coming years as more regulatory clarity is offered. Disclaimer: the information in this guide is provided for informational purposes only. 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). 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. Developed Nations. Choosing a Web3 Fundraising Document in 2023: a Playbook for Founders. In this case, the best option may be to sign a simple agreement for future tokens (SAFT).. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. 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? 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. In connection with each exercise pursuant to this Section 2, the Holder will provide to the Company with a network address to allocate Holder's Tokens to upon such exercise (or otherwise upon the applicable date of delivery, as described herein), and the Company shall deliver, or cause to be delivered, such Tokens to such network address, subject to the requirements of Section 3.2, and delivery and release pursuant thereto. | Date: | Date: | SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. Emerging Countries. 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. 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. Use valuation benchmarks to get a sense of what valuation range makes sense. This checklist provides key information for those outside the legal field but we, of course, strongly advise engaging a lawyer before entering into any binding agreements. During the period beginning on the date of the Token Launch and ending on the four-year anniversary of such date (the "_ Lockup Period "), Holder shall not, without the prior written consent of the Company, Transfer any Tokens except to the extent such Tokens have become unlocked, as follows: On the terms and conditions set forth in the Warrant, the undersigned Holder hereby elects to purchase its Portion of the Total Network Tokens (the "Warrant Tokens"), pursuant to the terms of the attached Warrant, and tenders herewith payment of the Warrant Exercise Price in full. Similar to the SAFE, under the SAFT, an investor, upon occurrence of a These Public Warrants will be under lockup for 91 days starting from 29-NOV-2022 to 28-FEB-2023. FTX TOKEN. 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 _"). in early 2022 regulates crypto investing in a way that amplifies rather than destroys its potential. WebRepresented Deconet in drafting the first blockchain-transferable software license, the Deconet Software License Agreement; Advising the founders of a top 10 token by market capitalization on fund formation and investment matters; Advising a leading entertainment company on all aspects of the development and minting of NFTs Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) Subject to the terms and conditions of this Warrant, Holder may exercise this Warrant, at any time or from time to time, on any Business Day on or after the date the Tokens are generated and available for issuance and delivery (the "_ Token Launch _") and before the Expiration Date, for Holder's Portion. As a founder, you want to communicate the nature of the business, and how value may accrue to either the tokens, equity, or both token and equity. Many web3 companies develop their own crypto tokens as part of a blockchain-based project, and these companies can theoretically mint as many tokens as they want. A SAFT (a simple agreement for future tokens) is a document that is usually signed with a startup that has already decided on the type of tokens it plans to issue, and already has detailed the tokenomics, and created a token distribution plan (including prices and stages of distribution) and a White Paper (which describes all of the above). In addition, any such restrictive provisions shall provide that any discretionary waiver or termination of the restrictions of such agreements that are approved by the Company's Board of Directors with respect to any Insider shall apply to Holder, pro rata, based on the number of Tokens held by such parties. WebEfficient and speed After both stakeholders have signed, the SAFT token warrant agreement can be developed as a smart contract and accomplished automatically. Webtoken undertaking vow warrant warranty word word of honor guarantees nounpledge, promise agreements assurances attestations bails bargains bonds certainties certificates certifications charters collaterals contracts covenants WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE as well as tokens. When standing at the crossroads trying to choose the most suitable document for pre-seed Web3 fundraising, its important to consider any regulatory restrictions on token transactions that are imposed on the DevLab by a local regulator. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. What a token warrant agreement is and how it actually works, When a token warrant agreement is typically signed, Similarities and differences between the token warrant and the, How to choose between a token warrant and a token side letter, What the terms of the token warrant (and the token purchase right terms) include, the token warrant is not used for automatic (unconditional) issuances: the, the price at which the investor buys the tokens in the future is fixed by the token warrant. 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. 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. Token warrants bear some key similarities to traditional stock warrants. Mentioning any of the assets in this article is not an endorsement to purchase them. "Company" shall include, in addition to the Company identified in the opening paragraph of this Warrant, any corporation or other entity that succeeds to the Company's obligations under this Warrant, whether by permitted assignment, by merger or consolidation or otherwise. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. WebSeedSAFT is the SeedLegals automated version of a SAFT (Simple Agreement for Future Tokens). 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. DevLab, in turn, converts token options into tokens for founders, advisors, and team members, as well as token side letters into tokens for investors. The second important difference between the two documents is that the token side letter does not require any additional details of payments for tokens: the consideration is already included in the price of the convertible equity agreement. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. Investors mint warrant tokens when they deposit capital into the aggregate pool. 25% of the total number of the Tokens of Holder shall become unlocked on the 12-month anniversary of the Token Launch (the " Cliff _"); Method of Exercise. It is the Token SPV that will be responsible for the sale of tokens and will have also received regulatory approvals to organise the distribution. Certain Public Warrants of AST SpaceMobile, Inc. are subject to a Lock-Up Agreement Ending on 28-FEB-2023. The structure of a SAFT is 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. Oxbridge Announces Filing of SPAC Business Combination Agreement. 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. Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Thus, like a SAFT, or Simple Agreement for Future Tokens, a token-based award in any event may be deemed a security, and its issuance should be compliant with Using the right legal instrument is critical and by using a token warrant and a SAFE, founders can reduce the chances of falling into a regulatory pitfall. 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. Just as a stock warrant allows the holder to buy shares of stock in the issuing company at a specified price in the future, a token warrant allows the holder to buy a certain amount of the companys tokens at a specified price in the future. A growing number of web3 startups are turning toward mechanisms that allow them to issue equity to investors in the form of their native tokens. 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. 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. Oops! For startups in the early stage of development, many investors will suggest or even expect the startup to structure their investment by signing a SAFE or other regular equity convertible instrument (Convertible Note, Advanced Subscription Agreement, etc.). If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. require an accommodating regulatory climate for their issuance and distribution, a DevLab may not always be the most suitable vehicle for token issuance. Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. The use of the covered warrant structure in the digitized security token era of 2019 introduces a critical structural enhancement to the industry overall and we are This is why its generally a smart idea for web3 startups to think twice before offering a massive token warrant to an early-stage investor.. Payment for Holder's Portion of Tokens upon each exercise may be made by (a) a check payable to the Company's order, (b) wire transfer of funds to the Company, (c) cancellation of indebtedness of the Company to Holder, (d) by net exercise as provided in Section 2.5 hereof, (e) any other method of payment approved by the Company, or (f) any combination of the foregoing. Equity term sheets are relatively standard, and today, when funds invest in an early-stage company, they typically use an instrument such as a convertible or a, (secure agreement for future equity) the latter popularized by. WebA SAFT is similar to a simple token warrant agreement for future equity (SAFE), allowing early-stage investors to convert their cash investment into equity later. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. A tag already exists with the provided branch name. In recent years, the rise of cryptocurrency and web3 startups has added a new chapter to the book on what early-stage investors need to know. SAFTs (secure agreement for future tokens) is one such mechanism. Notwithstanding anything herein to the contrary, even for Tokens that are subject to restrictions on transferability, Holder may exercise the voting and other governance rights linked to the Tokens or deploy them towards staking in accordance with the governance and other rules of the Protocol. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. In exercising its Portion of the Warrant, the undersigned Holder hereby confirms and acknowledges that the representations and warranties set forth in Section 6 of the Warrant as they apply to the undersigned Holder are true and complete in all respects as of the date on which Holder exercises this instrument. Finally, for those who are considering launching a DAO, well look at all you need to know about using token sale agreements. Schedule a call and we'll discuss your equity and see how we can help. This happens either when the Token SPV is registered or some time before the token generation event. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. Crypto companies differ from traditional companies in that they offer an alternative asset, the token. CENTUS issues WARRANT tokens with different terms: from 1 month to a year. WebThe Holder agrees that this Warrant is an agreement solely between such Holder and the Company, and the Holder shall look solely to the Company to enforce its rights hereunder, "_ Expiration Date _" means the earlier of (i) 5:00 p.m. Pacific Time on the date that is ten years following the Issue Date, and (ii) the date the Company and other Token Issuers irrevocably and affirmatively decide not to develop any Token. Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. Y = the number of Tokens equal to the portion of Holder's Portion remaining to be exercised. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms As of the Issue Date, the Holder shall deliver to the Company payment in cash equal to the Purchase Price. Investors usually structure these rights in the form of a right of veto on certain decisions of the company or as a list of reserved matters for which the company requires investor consent. 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.. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. The two primary documents used for fundraising as a crypto company are: At LiquiFi, weve observed that the SAFE with the Token Side Letter has emerged as the preferred fundraising strategy due to the flexibility and other benefits they offer to the company and the investors. It gives both startups and investors optionality. 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" Cannot retrieve contributors at this time. 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. VLOs analyze all the legal tasks needed to structure the fundraising, prepare cost estimates and then select the best legal providers from the Legal Nodes Network for each task. who hold token options and either have contracts with the DevLab or are employed by it. American companies should be very careful about how they participate in the distribution and sale of tokens. The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. It thus. The Token Purchase Agreement is for when tokens are just about to be issued or are already in circulation, rather than a SeedSAFT which is an advance purchase of tokens that will issued at some time in the future. How do you know if your tokenomics is ready? We can only hope that the executive order that Joe Biden signed in early 2022 regulates crypto investing in a way that amplifies rather than destroys its potential. view example token side letters with LiquiFi here, Cooopahtroopas and Lauren Stephanians tokenomics analysis, Company allocation or insiders supply method, Simpler, no need to manage the equity stake and the conversion of equity into tokens, More straightforward valuations on just the tokens alone, and not have to mix in the equity value component, Similar to SAFTs, with the added benefit of providing investors the optionality of retaining equity.