All Rights Reserved. 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 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. A simple agreement for future tokens (SAFT) is an investment contract offered by cryptocurrency developers to accredited investors. 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. THIS WARRANT HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND STATE SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES (AS SUCH TERM IS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO A QUALIFIED OFFERING STATEMENT PURSUANT TO REGULATION A OF THE SECURITIES ACT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. Notwithstanding the foregoing, it shall not be deemed a " Transfer _" of Tokens for a Holder to stake Tokens for the Holder's own account pursuant to the proof-of-stake protocol included in the Protocol. Please issue and deliver the Warrant Tokens to Holder at the network address set forth below. 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. "_ 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. 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. (please print or type complete name of entity) | The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. 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 After that, they manage the work, handling all communication with the service providers, quality-checking deliverables and ensuring that the fundraising and token launch are undertaken in a compliant way. 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). | Date: | Date: | The proceeds of the Note may be drawn in a single instance within five (5) business days after the date thereof. The terms and additional documents you require may depend on whether you plan to launch a DAO or not. WebToken warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens . 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. Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. require an accommodating regulatory climate for their issuance and distribution, a DevLab may not always be the most suitable vehicle for token issuance. agreement Select one of the following two alternatives: Cash Exercise. If they are on the stricter side or if there is a high risk of regulatory uncertainty, such as in the U.S., it is probably best to proceed with the token warrant.. SEC.gov | HOME 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. Warrant Tokens The token purchase right is the right to buy tokens in the future. 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.. https://lnkd.in/gTadru7d The key differences between the two are that the token side letter gives founders more flexibility in terms of whether they will issue tokens or not and what the token price would be. WebThe NVCA Model Legal Documents are the industry-embraced model documents that can be used in venture capital financings. Be the first to get your hands on a token sale agreement template by registering your interest here. The Holder hereby agrees that, without the prior written consent of the Company, the Holder will not: (a) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Locked Tokens, or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Locked Tokens; provided, however, that Holder may stake, vote or otherwise participate in the Network with respect to all of its Locked Tokens. You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. The In addition, Legal Nodes does not assume responsibility for the consequence of using any version of the templates found on our website. WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. Crypto Fundraising with Token Side Letters or Token Warrants This agreement is not suitable for retail investors or the general public. This may result in the investor receiving a percentage of the total token allocation thats lower than their equity ownership percentage. 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. 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. There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. Your existing traction, team, strategy, industry (DeFi, DAO tooling, NFT, P2E gaming) may all result in different valuations, and comparable companies in your specific industry can be used as a part of your negotiation. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. 5.1. Make sure to be clear with the investors on the value of the equity and the tokens together so that you dont end up with the wrong token side letter terms, or delay closing the deal because of misalignment on valuations. Understand how much negotiating leverage you have when fundraising, and whether you need founder-friendly terms or investor-preferred terms for the token side letter to close the deal. This is not the same for token warrants, where their value is already included in the value of the SAFE, to which the former is signed as an annex. Having over seven years of legal consulting experience, Nestor loves working with innovative startups and Web3 projects, helping them navigate the regulations and scale on global markets. Hence, this sale to the investor is also called a pre-sale. |, Name: ____________________________(please print or type full name) |, Name:(please print or type full name) | Additionally, if the DevLab also plans to issue rights to tokens to its investors, this is best done via a token warrant (and not Token Side Letter) because of the following 3 reasons:. 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. Issued on ____________, 2022 (the " Issue Date"). 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. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms Rankings and News. SAFTs (secure agreement for future tokens) is one such mechanism. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. 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 _"). Thus, if the rules of the DAO will provide for the issuance of governance tokens for its members or the receipt of Liquidity Provider (LP) tokens by existing tokenholders who have staked project tokens, investors will want to reserve the rights to the governance/LP tokens to become DAO members and participate in the future in its governance. In this regard, many Web3 founders register a separate company (Token SPV) in a crypto-friendly jurisdiction to issue and distribute their token and sign all token-related documents from this company. Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. WebSeedSAFT is the SeedLegals automated version of a SAFT (Simple Agreement for Future 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. a Token SPV). 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. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. At Legal Nodes, we help Web3 founders to legally structure fundraising effectively via a single legal platform. The holder of a token warrant isnt obligated to exercise it. EthSign TokenTable Beta Launch. We are excited to announce A company might issue warrants with the option to purchase future tokens based on each investors equity ownership percentage multiplied by the total token allocation for investors. 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. Based on these details, investors will arrive at a certain valuation for the equity and the tokens together. All the information in this guide is for educational purposes only. 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 tokens are not a replacement for receiving company shares as an investor its complementary and used alongside the traditional equity agreement and cap table. Cannot retrieve contributors at this time. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. 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. Agreement 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. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. Once the startup founders have gathered their core team and developed their idea into the Proof of Concept stage, they can begin to attract their first investments, hire new people, and start the journey to develop a fully-fledged product. 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. DevLab, in turn, converts token options into tokens for founders, advisors, and team members, as well as token side letters into tokens for investors. 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. These two documents are used in pre-seed Web3 fundraising and share a number of similarities. This eradicates the need for the agreement to be validated by a lawyer. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors. Warrant Use valuation benchmarks to get a sense of what valuation range makes sense. In case you need help with customizing the template, request a demo of our platform or send us a message in chat.. 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. 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. Learn more at our website at liquifi.finance. 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. It does not take into account the specifics of all national frameworks and infrastructure of all existing blockchain protocols. Model Legal Documents Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. This space will no doubt evolve over coming years as more regulatory clarity is offered. The Company have accounted for 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 SAFTs do not Delivery of Tokens. WebWhat is a token side letter or warrant (with a SAFE)? A tag already exists with the provided branch name. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. 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). 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? Agreement Item 1.01 Entry into a Material Definitive Agreement. General advice for startup fundraising applies here.