"_ Common Stock _" means the Company's Common Stock, par value [$0.00001] per share. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. The Company have accounted for Schedule a call and we'll discuss your equity and see how we can help. But in order for the tokens to maintain a relatively healthy and stable value, their developers must pay attention to tokenomics principles such as supply-and-demand and providing ongoing incentives to holders. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. Token warrants are an increasingly popular fundraising option among web3 startups, but there are a few peculiarities to how they work. Use valuation benchmarks to get a sense of what valuation range makes sense. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. American companies should be very careful about how they participate in the distribution and sale of 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, (secure agreement for future equity) the latter popularized by. Similar to the SAFE, under the SAFT, an investor, upon occurrence of a 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. 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.. According to the test, an investment contract exists if there is an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.. In this guide, well be focusing on fundraising for Web3 projects. In recent actions brought against the messaging startups Telegram and Kikboth of which attempted to use the SAFT for unregistered securities offeringsthe U.S. Securities and Exchange Commission (SEC) has suggested that it sees otherwise.. "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. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. 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. While some web3 startups have moved more aggressively into token-based equity, the fundraising ecosystem hasnt changed overnight. 1 for the offer, 1 for the agreement outlining equity and token allocations. Consult with your legal counsel on whether the SAFT or SAFTE is appropriate for your fundraising. This happens either when the Token SPV is registered or some time before the token generation event. See photos and more auction details on AuctionZip.com Now. Basically, its the token equivalent of a warrant for equity, or granting share options. Be the first to get your hands on a token sale agreement template by registering your interest here. In cases where the investor expects to get not only the future tokens, but also the shares of the company, founders should consider using a simple agreement for future tokens and equity (SAFTE) instead of a SAFT. WebToken warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens . 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: Here's an easy flow to use to figure out which option may work best for your project.. The number of tokens that will be issued is commensurate with the Restrictions on Exercise. 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). 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. This Warrant shall be exercised by submitting a copy of the exercise notice attached hereto as Exhibit 1, duly executed by Holder, and by payment in a form specified in Section 2.2 hereof of an amount equal to the Warrant Exercise Price or, if applicable, an election to net exercise this Warrant as provided in Section 2.5 hereof for the number of Tokens to be acquired in connection with such exercise. They reduce the time and cost of financings and free principals time to focus on high-level issues. "_ 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. 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. Issued on ____________, 2022 (the " Issue Date"). Token warrants are typically issued to equity investors in an overarching corporation (for example, popular DeFi protocol UniSwap was built by Uniswap Labs LLC). A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. The total number of tokens received by an investor commensurate with the equity ownership percentage x the percentage of token allocation for investors. There are differences between token side letters and token warrants depending on the legalese. This is not legal advice. 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). Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. For example, in the case of Maple, below, a seed investor who owns 10% of Maples equity would receive 2.6% of its tokens (10% x 26%). How do you know if your tokenomics is ready? "_ 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. Token Warrant Agreements Free Template and Guide, By submitting this form you agree with our privacy policy. Have your token side letter docs ready to go with the terms that you want before you start fundraising. 3. during the twelve months following the end-date of the period described in the immediately preceding clause "(b)", 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of such end-date; and LiquiFi, Inc. does not assume any liability for reliance on the information provided herein. 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. Lets look into the key terms of these agreements and highlight the main points for negotiations. 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. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. When it comes to fundraising, the big question often is which Web3 fundraising document should I use?. 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. "_ Insider _" means any current or former investors, stockholders, Founders, employees, officers, directors and advisors or other consultants of the Company and any Token Issuer (if other than the Company). When we say tokens, were referring broadly to blockchain-based digital assets. 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. 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. https://lnkd.in/gTadru7d For the token side letters, the same company that signs it, the DevLab, is also responsible for converting the document into tokens. The concept of the token purchase right in a token warrant can be roughly reduced into its three main features: Its important to note that these three circumstances apply to the signing of the token side letter too. 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. WebSAFE + Token Warrants - A combination of a SAFE and a token warrant has become increasingly popular for fundraising in Web3. Interest Rates. "_ 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 _"). Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. 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 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. 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 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. Scenario 3: You have already issued a token, in which case, the best route may be a private token sale agreement (TSA). simple agreement for future tokens (SAFT), Token Warrant Agreements Template and Guide, decided on a mechanism for your token supply and demand, chosen a blockchain network and technical standard for your tokens, planned some security measures for the token protocol and treasury, set a date for the Network & Token Launch (NTL), DevLabs registered in the U.S. (usually registered as a. DevLabs registered in other jurisdictions outside of the US, like in the UK, Singapore, Hong Kong, or one of a handful of European countries, will have more freedom to choose which legal instrument to use. If Holder Transfers any Token in contravention of this Section 3.3 (such Tokens "Transferred Tokens"), as liquidated damages and not as a penalty, Holder shall promptly (and, in any event, within five (5) days thereof) deliver and surrender to the Company a number of Tokens equal to the number of Transferred Tokens. Foreword: Thank you to the Alliance DAO team and Lindsay for their insights and help in writing this article. |, Title:(please print or type full title) | Developed Nations. *Consult with your legal counsel on whether to use a token side letter or token warrant. "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. 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 This article covers all there is to know about token warrants and includes a free token warrant template created by the team at Legal Nodes. Mentioning any of the assets in this article is not an endorsement to purchase them. "_ Subsidiary _" shall mean any entity (other than the Company) in an unbroken chain of entities beginning with the Company, if each of the entities other than the last entity in the unbroken chain 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. 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 latest industry news, updates and info. As soon as practicable on or after such date, and in any event within two (2) Business Days following such date of exercise, the Company shall issue and deliver, or cause to be issued and delivered, to the Person or Persons entitled to receive the same the Tokens issuable upon such exercise. 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 LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. In summary, the choice of an investment document for Web3 projects is mostly influenced by the readiness of the tokenomic model. 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 But, as with all things crypto (and equity, for that matter), you wont want to dive in blindly. 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. If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. Choosing a Web3 Fundraising Document in 2023: a Playbook for Founders. Homepage. Something went wrong while submitting the form. Until a token launch, there is always some non-zero chance that tokens may never be issued. WebThe NVCA Model Legal Documents are the industry-embraced model documents that can be used in venture capital financings. Are you sure you want to create this branch? 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). The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms 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. We also offer a number of tools and features with employees and other token holders in mind. Token warrants bear some key similarities to traditional stock warrants. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. Before we get started, wed like to remind you that everything in this article is for educational and informational purposes only, and is not legal advice. We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). WebWhat is a token side letter or warrant (with a SAFE)? Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. The proceeds of the Note may be drawn in a single instance within five (5) business days after the date thereof. "_ 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 mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor George Doriot raised a $3.5 million fund to invest in technology companies back in 1946. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. 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. As with any legal agreement, the token warrant comprises a number of terms and conditions. ContraFect has agreed to issue 128,000 shares of common stock and pre-funded warrants to purchase 2,372,000 shares of common stock. These Warrants will be under lockup for 181 days starting from 1-SEP-2022 to | Certain Warrants of bioAffinity Technologies, Inc. are subject to a Lock-Up Agreement Ending on 1-MAR-2023. Remember! Get early access to token side letters, token vesting, and cap table management solutions at LiquiFi. Instead, our Virtual Legal Officers (VLOs) source and manage all the different legal specialists. 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. Finally, for those who are considering launching a DAO, well look at all you need to know about using token sale agreements. 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. 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. 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. Thank you! All Rights Reserved. 12/ Token warrants are a mechanism for equity holders to exercise the warrant to get tokens. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. (secure agreement for future tokens) is one such mechanism. 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. Steve Glaveski is the founder of community-owned web3 accelerator and venture fund, Metarise, founder of innovation accelerator Collective Campus, and author of Time Rich: Do Your Best Work, Live Your Best Life.He hosts the Future Squared and Metarise podcasts, and frequently contributes to Harvard Business Review. WebSeedSAFT is the SeedLegals automated version of a SAFT (Simple Agreement for Future Tokens). who hold token options and either have contracts with the DevLab or are employed by it. 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. 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. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. 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. WebCheck out the article below to learn 5 Things to Know About Token Warrants. LayerZero claims it is well-capitalized with approximately 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. Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. 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 This is possible thanks to the token warrant assignment by the DevLab to the Token SPV at the time it is created or before the token generation event. 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. But this promise for future tokens has run afoul of the. The number of tokens issued to the holder upon exercise of the warrant is typically commensurate with the holders investment stake in the company, though it may also be affected by the total allocation of tokens for investors. raised a $3.5 million fund to invest in technology companies back in 1946. This space will no doubt evolve over coming years as more regulatory clarity is offered. 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. 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.. The SAFT is a derivative of the SAFE and stands for the simple agreement for future tokens. A SAFE is a sort of investment contract that an early-stage startup makes with an investor, in which the investor agrees to pay money now and receive shares of company stock later. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. 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. 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. Learn, fix a problem, and get answers to your questions. 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. Both Telegram and Kik were found to fail the Howey Test 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 Securities Act of 1933 and Securities Exchange Act of 1934. 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. Web[Meta] Sticky Comment. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE