Get early access to token side letters, token vesting, and cap table management solutions at LiquiFi. This agreement sets out the You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. Crypto companies differ from traditional companies in that they offer an alternative asset, the token. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and WebRepresented Deconet in drafting the first blockchain-transferable software license, the Deconet Software License Agreement; Advising the founders of a top 10 token by market capitalization on fund formation and investment matters; Advising a leading entertainment company on all aspects of the development and minting of NFTs 4. during the twelve months following the end-date of the period described in the immediately preceding clause "(c)", 1/12th of 25% of the total number of the Tokens of Holder shall become unlocked on each monthly anniversary of such end-date. Similar supply-demand issues may arise if a bunch of separate warrants are exercised at the same time. "_ 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. The use of Tokens in connection with the Platform may be governed by other 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 _"). Select one of the following two alternatives: Cash Exercise. The fully diluted supply and conversion rate method gives investors a fixed token supply guarantee based on their equity ownership, while the company allocation method is subject to future token allocation decisions by the company. Cannot retrieve contributors at this time. "_ 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. in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? Oxbridge Announces Filing of SPAC Business Combination 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. 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. Other investors prefer the direct alignment with the founders with the company allocation method. Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. 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. | You should not construe any such information as legal, tax, investment, trading, financial, or other advice., If youre considering fundraising options for your Web3 projects, youll most likely find yourself in one of the three following, rather common, scenarios:, Scenario 1: Youre at the beginning of developing your project and havent yet registered a token company (i.e. As with any legal agreement, the token warrant comprises a number of terms and conditions. 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. With it, the purchaser pre-pays for tokens that havent been released yet and the company uses that money to develop the tokens. Check out our token side letter, token warrant and simple agreement for future tokens templates. This might seem somewhat unfair to investors, and startups might sweeten the deal for investors by offering a sizeable discount on the price of purchasing tokens in the future. Also, the investor can claim the Token SPV shares to consolidate their control rights. General advice for startup fundraising applies here. 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. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) WebManage your legal agreements (SAFTs, token warrants, token grants) and communicate the value of your future token. When fundraising, you want to have a valuation benchmark by looking at the market of comparable companies in recent fundraising. "_ Fully Diluted Percentage _" means, with respect to a Holder, the quotient obtained by dividing (a) the total number of Common Stock then issuable (directly or indirectly) upon the conversion of Preferred Stock of the Company, as if converted, by (b) the total Common Stock of the Company then outstanding (assuming (i) full conversion of all Preferred Stock then outstanding, and treating for this purpose all Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted and (ii) without duplication, issuance of all shares reserved but unissued under the Company's equity incentive plan(s)). All Rights Reserved. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. The model documents: Reduce transaction costs and time Reflect, guide, and establish industry norms SAFTs do not In these cases, we can distinguish two general approaches. Nestor is a Co-founder & Head of Web3 Legal at Legal Nodes. 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. 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.. Please, The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor. This could be done as soon as the Token SPV is incorporated. One increasingly popular way to do this is via the issuance of token warrants.. 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. 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. These tokens are used, similar to game credits at an arcade or tickets at a theme park, for interacting with decentralized applications (dApp). and the type of signatory company youll be using to sign your fundraising documents, youll have a number of different fundraising documents you can choose from. The Company have accounted for You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. Without limiting the generality of the foregoing, " Transfer " shall include entering into any short position, any "put equivalent position," "call equivalent position", option or contract to sell or purchase, or swap or other arrangement that transfers to another, in whole or in part, any of the economic or other consequences of ownership of any Tokens, in each case, whether any such transaction is to be settled by delivery of such Tokens, other virtual currencies or virtual mediums of exchange, in cash, or otherwise. 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 Your submission has been received! American companies should be very careful about how they participate in the distribution and sale of tokens. In particular, both the token warrant and the token side letter: Despite being related, appearing at the same point of the Web3 fundraising process, and having similar sounding names, the token warrant and the token side letter are sisters, not twins. 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. LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. 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. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. CENTUS issues WARRANT tokens with different terms: from 1 month to a year. 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. Disclosure: I am not a lawyer, this is not legal advice, and you should seek out independent legal counsel for your unique circumstances. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. 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). However, when the token warrant is executed during the initial token sale, the investors will be making a transaction with the Token SPV directly, at the rate of the previously determined price or discount. 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. 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. WebThe Holder agrees that this Warrant is an agreement solely between such Holder and the Company, and the Holder shall look solely to the Company to enforce its rights hereunder, 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. However, it could alternatively take place just before the token generation event. Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. 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. Your token side letter should reflect the 2:1 rights on the equity, reflecting the valuations of the equity and tokens together. Please issue and deliver the Warrant Tokens to Holder at the network address set forth below. 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. 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 Are you sure you want to create this branch? and signed agreements in their personal portals. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. Thank you! If founders have registered the DevLab outside of the US (i.e. "_ Insider Reserved Percentage _" means the percentage of the Total Network Tokens, in the aggregate, reserved for issuance to Insiders in connection with the applicable Token Launch. Its not uncommon for the cap table of a web3 startup to include both traditional equity (RSAs, stock options, etc.) 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. Many web3 companies develop their own crypto tokens as part of a blockchain-based project, and these companies can theoretically mint as many tokens as they want. All Tokens distributed to or received by Holder pursuant hereto shall be subject to a mandatory Lockup Period. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. See below for an illustrative example where the method used can result in different outcomes for investors depending on the token allocation. 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. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. "_ 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. This agreement is not suitable for retail investors or the general public. Find him on Twitter at @steveglaveski., This site requires JavaScript to run correctly. Welcome to Legal Nodes Playbook for Founders. 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. Lets explore these in the next chapters of this guide.. WebThe lowest price paid for Lotto Arbitrum (LOTTO) is $0.064796044161 , which was recorded on Mar 03, 2023 (13 hours). Talk to your legal counsel to devise the right strategy for your situation and fundraising needs. 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. Remember! 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.. 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%). That price would, naturally, be lower than the standard price during the token generation event. 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 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. Schedule a call and we'll discuss your equity and see how we can help. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. https://lnkd.in/gTadru7d view example token side letters with LiquiFi here, Cooopahtroopas and Lauren Stephanians tokenomics analysis, Company allocation or insiders supply method, Simpler, no need to manage the equity stake and the conversion of equity into tokens, More straightforward valuations on just the tokens alone, and not have to mix in the equity value component, Similar to SAFTs, with the added benefit of providing investors the optionality of retaining equity. "_ 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). These two documents are used in pre-seed Web3 fundraising and share a number of similarities. 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 Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. 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. | The second important difference between the two documents is that the token side letter does not require any additional details of payments for tokens: the consideration is already included in the price of the convertible equity agreement.