Copyright 2023 Prolific Labs Incorporated. 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. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. 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. This company is usually registered in a jurisdiction where the legislation permits token issuance and provides defined rules for taxation of token-sale transactions. Therefore, a detailed White Paper with a description of token use cases, tokenomics, and token distribution plans is necessary to prepare a fully-fledged SAFT. One increasingly popular way to do this is via the issuance of token warrants.. Consult with your legal counsel on whether the SAFT or SAFTE is appropriate for your fundraising. Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) Oops! The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. WebThis Token Purchase Agreement (this Agreement ) contains the terms and conditions that govern your purchase of the INX Tokens, an ERC20 blockchain asset that is programmed Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). In case you need help with customizing the template, request a demo of our platform or send us a message in chat.. 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. Crypto companies differ from traditional companies in that they offer an alternative asset, the token. That price would, naturally, be lower than the standard price during the token generation event. Both Telegram and Kik were found to fail the, which determines whether or not a transaction qualifies as an investment contract and would therefore be deemed a security and subject to disclosure and registration requirements under the. Token warrants are typically issued to equity investors in an overarching corporation (for example, popular DeFi protocol UniSwap was built by Uniswap Labs LLC). - 10X jurisdictions. In terms of issuing tokens, the way they function is fundamentally different. 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. 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. 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 latter can be seen as riskier due to the unknown token allocations that have yet to be made. WebAll Ember Tokens issued by the Company upon the proper exercise of an Ember Warrant in conformity with this Warrant Agreement shall be validly issued, fully paid and non Rarely used anymore. Legal Nodes does not assume responsibility for the contents of any templates or documents in any form that are provided on the Legal Nodes website. Its no longer enough to understand the ins and outs of stock options, stock warrants, and other mechanisms of traditional equity. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. Homepage. A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. 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. Choosing a Web3 Fundraising Document in 2023: a Playbook for Founders. 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. 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. Depending on the business and how it leverages the tokens into the business model, investors will value the equity and tokens accordingly. Investors have a preferred method based on their own experiences, risk profile, and projections about the companys future token allocations. The Company will promptly respond in writing to an inquiry by Holder as to the then current fair market value of one Token. WebSeedSAFT is the SeedLegals automated version of a SAFT (Simple Agreement for Future Tokens). Investors not only want equity in the companies they invest in, but also the tokens that can be used to interact with these dApps because of their utility value. For purposes of this calculation, any SAFE that has not yet converted to equity will be considered to convert at its valuation cap. WebPublic Auction: "03/07/2023 COINS/STOCK CERTIFICATES/RELATED ITEMS" by Jeff Rich Auction Service. Therefore, in some cases, the token side letter may look more appealing to investors compared to the token warrant, as it will not involve any additional payments to receive tokens later. Notice of Expiration. If the DevLab is registered in a non-US jurisdiction (in Hong Kong, the UK, and some European countries) and, in addition to using a standard SAFE, also plans to issue to its investors the rights to tokens, the DevLab will have more flexibility in choosing between the token warrant and a token side letter. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. 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. Historical precedents have been set in previous court cases involving SAFTs (Kik, Telegram). But this promise for future tokens has run afoul of the Securities and Exchange Commission (SEC). Unlike SAFTs, these token warrants typically come in the form of an optional side letter and dont guarantee the deployment of tokens - therefore avoiding the legal complications faced by its predecessor. 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. 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. The Company have accounted for Disclaimer: the information in this guide is provided for informational purposes only. | The proceeds of the Note may be drawn in a single instance within five (5) business days after the date thereof. The token purchase right is the right to buy tokens in the future. 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.). 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 _"). Chief among these mechanisms are ICOs (Initial Coin Offerings), SAFTs (Simple Agreements for Future Tokens) and token warrants, the last of which well explore in this guide. Well analyze all the different documents and explore when they may be most suitable to use. the amount of investor allocation of tokens, the price of tokens at the time of transfer to the investor, conversion event (the moment when the SAFT is converted into tokens for the investor). LiquiFi, Inc. does not assume any liability for reliance on the information provided herein. Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. who hold token options and either have contracts with the DevLab or are employed by it. Remember! SAFTs do not 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. 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. Disclaimer: the information in this guide is provided for informational purposes only. Basically, its the token equivalent of a warrant for equity, or granting share options. The total number of tokens received by an investor commensurate with the equity ownership percentage x the percentage of token allocation for investors. General advice for startup fundraising applies here. It gives both startups and investors optionality. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. 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. ETFs Rates. An investor with a 10% ownership stake would be entitled to purchase only 2% of the total tokens (10% x 20% = 2%)., Token warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens., The structure of a SAFT is based on a similar equity-based mechanism called a SAFE (Simple Agreement for Future Equity). 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. A SAFT broadly follows the same principles as a SAFE (Simple Agreement for Future Equity) or, our SAFE equivalent, a LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. Lets look into the key terms of these agreements and highlight the main points for negotiations. It gives investors the right to purchase a portion of tokens during the initial token sale, as well as fixes the price of the tokens. require an accommodating regulatory climate for their issuance and distribution, a DevLab may not always be the most suitable vehicle for token issuance. They reduce the time and cost of financings and free principals time to focus on high-level issues. WebCheck out the article below to learn 5 Things to Know About Token Warrants. Disclosure: I am not a lawyer, this is not legal advice, and you should seek out independent legal counsel for your unique circumstances. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. | On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. 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. Comparatively, the current price is 215.40% higher than the all-time low price. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. This agreement is not suitable for retail investors or the general public. Restrictions on Tokens. To do that, it first receives the allocated number of tokens from the token-issuing company, the Token SPV. Method of Exercise. Messaging app Telegram was forced to return US$1.2 billion and pay the SEC an $18.5 million penalty because its native tokens, GRAMS, were found to violate federal securities laws. 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. All the information in this guide is for educational purposes only. Some investors prefer a guaranteed amount of tokens with the fully diluted supply or conversion rate method. 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).. But if they do, the company must mint new tokens equal to the number of tokens in the exercised warrant. While securities laws around tokens and digital currencies are still evolving, some may view SAFTs as carrying more legal and regulatory risks than token warrants. 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. For the avoidance of doubt, any Tokens issued upon exercise of this Warrant and subject to the Lockup Period will be delivered immediately upon exercise to Holder and held by Holder for its own account. Token Warrant Agreements Free Template and Guide, By submitting this form you agree with our privacy policy. Transfer Restrictions; Lockup Period. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. 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. We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). Your submission has been received! Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. "_ Deemed __ Liquidation Event " has the meaning set forth for such term in the Company's Amended and Restated Certificate of Incorporation, as amended from time to time (the " Certificate _"). 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. Get early access to token side letters, token vesting, and cap table management solutions at LiquiFi. because its native KIN tokens were also found to violate securities laws. With it, the purchaser pre-pays for tokens that havent been released yet and the company uses that money to develop the tokens. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. 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 SAFE note (secure agreement for future equity) the latter popularized by Y-Combinator. "_ 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. 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.. "_ Portion _" means, with respect to Holder and as of the date of the applicable Token Launch, a number of Tokens equal to the product of (a) Holder's Fully Diluted Percentage; multiplied by (b) the Insider Reserved Percentage; and multiplied by (c) the Total Network Tokens, in each case as of the date of the Token Launch. Any Tokens issued hereunder will be subject to such restrictions on transferability as required by applicable laws and regulations as determined by the Company's Board of Directors and as set forth in Section 3.3 hereto; provided, however, that such restrictions shall be no more stringent than those applicable to Tokens owned by or allocated to any Insider and shall be adjusted, as applicable, to accelerate or otherwise align with any such less stringent restrictions. 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. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. Investors then buy tokens directly from the Token SPV, which is the actual issuer and has the right to sell them under a permit received from the regulator. While not the same, properly drafted token side letters and warrants are intended to achieve the same outcome and are used interchangeably for this article. Mentioning any of the assets in this article is not an endorsement to purchase them. 1 for the offer, 1 for the agreement outlining equity and token allocations. 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. 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. Talk to your legal counsel to devise the right strategy for your situation and fundraising needs. Lets explore these in the next chapters of this guide.. February 28 business combination with Jet Token Inc. (Jet), a Delaware based company. See photos and more auction details on AuctionZip.com Now. Instead, our Virtual Legal Officers (VLOs) source and manage all the different legal specialists. This space will no doubt evolve over coming years as more regulatory clarity is offered. 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. At Legal Nodes, we help Web3 founders to legally structure fundraising effectively via a single legal platform. "_ 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. 2. during the twelve months following the Cliff, 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of the Cliff; Any attorney-client relations are between clients and legal providers only. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. 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. Because the token sale agreement is signed at a more mature stage of a Web3 projects development and the investment amounts are quite significant, investors often have questions about obtaining control rights over the company and receiving tokens. Oxbridge Announces Filing of SPAC Business Combination Agreement. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. These tokens are used, similar to game credits at an arcade or tickets at a theme park, for interacting with decentralized applications (dApp). This commit does not belong to any branch on this repository, and may belong to a fork outside of the repository. But this promise for future tokens has run afoul of the. 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. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. 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. In order to determine the best approach of how to structure it, it is necessary to assess the readiness of the projects tokenomics. 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. WebSAFE + Token Warrants - A combination of a SAFE and a token warrant has become increasingly popular for fundraising in Web3. 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. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms 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. Select one of the following two alternatives: Cash Exercise. The token side letter provides an additional advantage for investors, as no additional payments are required to receive tokens. "_ Parent _" shall mean any entity (other than the Company) in an unbroken chain of entities ending with the Company, if each of the entities other than the Company owns securities possessing 50.1% or more of the total combined voting power of all classes of securities in one of the other entities in such chain. 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. Tokens represent a tradable asset or utility that holders can use for a wide range of functions (e.g., voting, access to content, unlocking feature benefits, purchasing items or other digital assets). To read more about the SAFT, how to use it, and to get a free SAFT template from Legal Nodes, visit this page. Depending on where the DevLab is incorporated, the following scenarios will unfold:. This allows investors to receive company shares as well as tokens, and its becoming an increasingly popular way to invest in web3 startups., If you dont plan ahead, you could quickly run into the complication of using separate systems to manage equity and tokens. "_ 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. You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. The Company shall be entitled to assume the validity of any network address provided by a Holder and has no duty to verify such network address. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. 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. ETF. |. WebToken warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens . Welcome to Legal Nodes Playbook for Founders. The holder of a token warrant isnt obligated to exercise it. This, in turn, can be reflected in the token sale agreement in the process of structuring the investment round or specified in the DAO Constitution, which is similar to a shareholders agreement in traditional Web2 investing. Fortunately, Pulley makes it easy to track both traditional equity and tokens in the same place., With Pulley, you can create a single source of truth that allows you to issue, track, and record all token agreements and token sales the same way you do with your equity agreements. Rival messaging app Kik was also ordered to pay a $5 million penalty because its native KIN tokens were also found to violate securities laws. How do you know if your tokenomics is ready? This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. 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). | Date: | Date: | Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. And if you plan to give a small amount of tokens to the company, it may be better to use the company allocation methodology (so that investors get fewer tokens for the same amount of capital). "Token(s)" means the digital assets created and issued by the Company, or any Parent, Subsidiary, Affiliate, foundation formed for the purposes of issuing a Token native to a Protocol or Founder (provided that, with respect to a Founder, no such asset shall constitute Token(s) for purposes hereof unless such asset is (i) based on the Protocol and (ii) created prior to the three month anniversary of the termination of services of such Founder to the Company or another Token Issuer) of the Company or their respective successors or assigns (collectively, "_ Token Issuers _"), that are developed using Company Intellectual Property; provided, that Tokens shall not include any digital assets that may be implemented by the holders of the Tokens by governance proposal and votes, so long as any such tokens (x) shall be issued in accordance with the governance terms of the Protocol or any Token Issuer's network or Protocol and not in any Token Issuer's discretion and (y) that Holder shall be reasonably able to participate in any staking, rewards or inflationary or dilutive controls introduced through any such proposal to the same extent as any other similarly situated holder of the Tokens.
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