All Rights Reserved. (To be completed and signed only upon each exercise of the Warrant). Three main types of managing the pro-rata rights of the token supply: Each of the pro-rata right methods has its advantages and disadvantages for the company or the investors. Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) Thank you! We refer to that certain Warrant to Purchase Tokens of the Company issued on _________, 2022 (the "Warrant"). Blockchain technology has enabled a number of new equity types that may change the future face of startup financing. Some investors prefer a guaranteed amount of tokens with the fully diluted supply or conversion rate method. 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). As such, Jet Token shareholders are expected to receive total mixed consideration of $105 million, or $0.72/per Jet Token share. One increasingly popular way to do this is via the issuance of token warrants.. 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. | Date: | Date: | 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). 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. "_ 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. Depending on the state of your tokenomics (is it ready or is it still in the works?) Lets explore these in the next chapters of this guide.. (please print or type complete name of entity) | When something like this occurs, it's typically an indicator that the joint parties expect the stock price to rise significantly (otherwise, there is no point in issuing such an agreement). 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. Investors may also expect to sign a token warrant (or a token side letter), which guarantees the investor the right to receive tokens in the future should any be released. Choosing a Web3 Fundraising Document in 2023: a Playbook for Founders. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. https://lnkd.in/gTadru7d Mentioning any of the assets in this article is not an endorsement to purchase them. Select one of the following two alternatives: Cash Exercise. Welcome to Legal Nodes Playbook for Founders. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. 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; Disclaimer: the information in this guide is provided for informational purposes only. They reduce the time and cost of financings and free principals time to focus on high-level issues. Therefore, all things considered, the token warrant is better suited for DevLabs incorporated in the U.S.. As for DevLabs registered outside the U.S., such as in Europe, Asia, or Latin America, they have more flexibility in choosing which fundraising document to use, be that the token warrant or the token side letter. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) 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. WebManage your legal agreements (SAFTs, token warrants, token grants) and communicate the value of your future token. The amount of tokens the investor can receive via the side letter or warrant is proportional to the equity granted via the SAFE. This agreement is not suitable for retail investors or the general public. While some web3 startups have moved more aggressively into token-based equity, the fundraising ecosystem hasnt changed overnight. The involvement of the DevLab in token distribution often occurs after the Token SPV issues tokens, and reserves a part of the tokens for key contributors (founders, advisors, team) and investors, subsequently transferring this pool to the DevLab. The 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 Item 1.01 Entry into a Material Definitive Agreement. Legal Due Diligence of a Web3 startup A Web3 startup needs to prepare several legal documents and materials for its project to negotiate with venture capital firms (VCs) successfully. Multi-Signature Support. Oxbridge Announces Filing of SPAC Business Combination Agreement. Cannot retrieve contributors at this time. 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. Basically, its the token equivalent of a warrant for equity, or granting share options. WebEfficient and speed After both stakeholders have signed, the SAFT token warrant agreement can be developed as a smart contract and accomplished automatically. There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. Because your token strategy and business models are subject to change, you want to have as much flexibility for your future token allocation and minimal token dilution. This could influence which token pro-rata right method you negotiate for. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. 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. 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. 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" WebWARRANT tokens can be issued in conjunction with any tokens, which in turn are called warrant-linked tokens. 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 Your submission has been received! It is, however, rare for the tokenomics to be ready at such an early stage. 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. "_ Common Stock _" means the Company's Common Stock, par value [$0.00001] per share. 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. If it is not ready yet and depending on where the DevLab is registered, then, in addition to standard equity instruments, the DevLab can also sign a token warrant in the U.S. or can sign either a token warrant and a token side letter if the DevLab is a non-U.S. entity., When the tokenomics is finalized, the Token SPV signs either a SAFT or a token sale agreement, where the choice depends on whether the tokens have already been issued before.. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. Based on these details, investors will arrive at a certain valuation for the equity and the tokens together. 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. 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. SAFTE (Simple Agreement for Future Tokens or Equity) similar to SAFT, but gives investors equity with the optionality of converting to tokens. If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. 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. 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.). Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Copyright 2023 Prolific Labs Incorporated. LayerZero Labs issued a letter saying it has come to an agreement with FTX, FTX Ventures and Alameda for a complete equity buyout. Please issue and deliver the Warrant Tokens to Holder at the network address set forth below. The SAFT is a derivative of the SAFE and stands for the simple agreement for future tokens. 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. Something went wrong while submitting the form. The structure of a SAFT is Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. 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. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. Net Exercise Election. Homepage. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. Basically, its the token equivalent of a warrant for equity, or granting share options. To do that, it first receives the allocated number of tokens from the token-issuing company, the Token SPV. Also, the investor can claim the Token SPV shares to consolidate their control rights. Certain Public Warrants of AST SpaceMobile, Inc. are subject to a Lock-Up Agreement Ending on 28-FEB-2023. Web[Meta] Sticky Comment. 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. and signed agreements in their personal portals. 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. 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. 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. 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 Use valuation benchmarks to get a sense of what valuation range makes sense. 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). When fundraising, you want to have a valuation benchmark by looking at the market of comparable companies in recent fundraising. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. 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. If you and your investors have agreed to value the token warrant/side letter rights and equity together at some value, the formula for token allocation should reflect that. Investors have a preferred method based on their own experiences, risk profile, and projections about the companys future token allocations. 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. Because SAFTs are considered It held $11.5 million on crypto exchange FTX and has written that down to zero, but expects to receive some sort of compensation in the future. The proceeds of the Note may be drawn in a single instance within five (5) business days after the date thereof. 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. in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? Any attorney-client relations are between clients and legal providers only. 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. Depending on where the DevLab is incorporated, the following scenarios will unfold:. 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. "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. as well as tokens. 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 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. Disclaimer: the information in this guide is provided for informational purposes only. If youre the founder of a web3 startup looking to attract venture capital investors, issuing token warrants could help you translate your protocol or dApps tokens into equity that fuels your startups growth. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. 1. General advice for startup fundraising applies here. Feb. 9PORT CARBON An intruder shot by a property owner in the borough early Tuesday suffered three gunshot wounds, including one to the spine. 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. Finally, for those who are considering launching a DAO, well look at all you need to know about using token sale agreements. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. WebThe NVCA Model Legal Documents are the industry-embraced model documents that can be used in venture capital financings. 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. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. For the token side letters, the same company that signs it, the DevLab, is also responsible for converting the document into tokens. In this guide, well be focusing on fundraising for Web3 projects. The transaction contemplates an enterprise value of approximately $45 million for Jet Token, and additional earnout warrants with a Black Scholes valuation of $60 million. See photos and more auction details on AuctionZip.com Now. Issued on ____________, 2022 (the " Issue Date"). You can view example token side letters with LiquiFi here. 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. You also dont have your tokenomics established yet either. 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. Hence, this sale to the investor is also called a pre-sale. One way a company can avoid this out-of-control minting of new tokens is by setting aside a certain percentage of its total token allocation for investors. WebSAFE + Token Warrants - A combination of a SAFE and a token warrant has become increasingly popular for fundraising in Web3. 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. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. There are differences between token side letters and token warrants depending on the legalese. As explained above, our template works with a discount and a core contributors allocation pro-rata formula, which is one of several methods suitable for a token warrant agreement. 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. Instead, it only confirms the right of investors to purchase tokens with a discount or at a predetermined price. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. Scenario 1: 20% allocation of tokens for the company and insiders (founders, employees, company treasury), Scenario 2: 60% allocation of tokens for the company and insiders (founders, employees, company treasury). For purposes of this calculation, any SAFE that has not yet converted to equity will be considered to convert at its valuation cap. Investors mint warrant tokens when they deposit capital into the aggregate pool. Y = the number of Tokens equal to the portion of Holder's Portion remaining to be exercised. Upon each exercise of this Warrant and subject to the restrictions provided in Section 3.2 hereof, Holder may elect to make such exercise without the payment by Holder of any additional consideration, by submitting a copy of the exercise notice attached hereto as Exhibit 1 with the net exercise election selected, duly executed by Holder, for the number of Tokens that is obtained under the following formula: where X = the number of Tokens to be issued to Holder pursuant to a net exercise of this Warrant effected pursuant to this Section 2.5. Interest Rates. is the founder of community-owned web3 accelerator and venture fund, Time Rich: Do Your Best Work, Live Your Best Life. Free template:Token Warrant Agreements Template and Guide. He represents technology companies and investors in all types of corporate transactions, including venture capital financings, public offerings, and mergers and acquisitions, and has a practice of representing dozens of companies and investors Watch this clip from our "Fundraising for Web3 Projects" talk that covers token sale agreements and their use in more detail: If the Web3 founders of the project plan to decentralize its ownership and governance by launching a DAO in the future, it will be important for the investor to understand exactly how the members of the DAO will be selected, and how exactly the governance rights for these DAO members will be structured, as the investor is likely to apply to participate in the DAO themselves. "_ 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. Comparatively, the current price is 215.40% higher than the all-time low price. With it, the purchaser pre-pays for tokens that havent been released yet and the company uses that money to develop the tokens. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. ContraFect has agreed to issue 128,000 shares of common stock and pre-funded warrants to purchase 2,372,000 shares of common stock. WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE 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. All content presented herein is for informational purposes only. IN WITNESS WHEREOF, the undersigned Holder has executed and delivered the Warrant and this Exercise Notice as of the date set forth below. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. 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. 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. Thank you! Token warrants bear some key similarities to traditional stock warrants.