Token warrants bear some key similarities to traditional stock warrants. "_ 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. Lets explore these in the next chapters of this guide.. 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. Notwithstanding anything herein to the contrary, even for Tokens that are subject to restrictions on transferability, Holder may exercise the voting and other governance rights linked to the Tokens or deploy them towards staking in accordance with the governance and other rules of the Protocol. To do that, it first receives the allocated number of tokens from the token-issuing company, the Token SPV. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. 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. 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. This is speculative and due in part to 1) token warrants optionality, and 2) the fact that the SEC has specifically called out issues with SAFTs promise to deliver future tokens to investors. | The token warrant, however, requires a discount or a discounted price as one of its substantive terms to function. WebTHIS SIMPLE AGREEMENT FOR FUTURE TOKENS ( SAFT ) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. WebUnless otherwise stated herein, this Token Sale Agreement governs only your purchase of 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. 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. 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. Issued on ____________, 2022 (the " Issue Date"). 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. 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. This Warrant shall be deemed to have been exercised with respect to Holder immediately prior to the close of business on the date that it is exercised pursuant to the terms of Section 2 above by Holder, and the Person entitled to receive the Tokens issuable upon such exercise shall be treated for all purposes as the holder of record of such Tokens as of the close of business on such date. SAFTs are often used for seed-stage fundraising in crypto and Web3 projects. Depending on where the DevLab is incorporated, the following scenarios will unfold:. I co-authored this article with Joseph Perkins, Mark Janoff, and Robert Moore. 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. Feb. 9PORT CARBON An intruder shot by a property owner in the borough early Tuesday suffered three gunshot wounds, including one to the spine. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. 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). As with any legal agreement, the token warrant comprises a number of terms and conditions. As of the Issue Date, the Holder shall deliver to the Company payment in cash equal to the Purchase Price. Supporting. Well analyze all the different documents and explore when they may be most suitable to use. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. WebA general form of warrant to be used in connection with the financing of a private company, including in a private equity or venture capital transaction. Oops! 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. Check out sources like Dovemetrics and fundraising announcements on Crunchbase and Twitter to get this data. Welcome to Legal Nodes Playbook for Founders. How do you know if your tokenomics is ready? 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. 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 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. 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. You signed in with another tab or window. Jonathan Chan is a partner in the corporate practice at Wilson Sonsini Goodrich & Rosati. 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. 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, Consequently, the DevLab is not involved in token sale (the paid token transfer) but instead it covers only the distribution of tokens previously received from Token SPV. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. 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. WebA 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 Emerging Countries. Token warrants arent the only way to issue token-based equity, but they may come with some regulatory and practical advantages. Consider the following three points when comparing the registration of DevLabs in the US vs outside the US. 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).. For the token side letters, the same company that signs it, the DevLab, is also responsible for converting the document into tokens. 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. This commit does not belong to any branch on this repository, and may belong to a fork outside of the repository. These equity types generally allow investors in web3 startups to receive a certain number of tokens commensurate with the size of their investment.. Your submission has been received! WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. 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. 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. Talk to your legal counsel to devise the right strategy for your situation and fundraising needs. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. 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. Token warrants are an increasingly popular fundraising option among web3 startups, but there are a few peculiarities to how they work. 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. IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the date first written above. 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. Your best option in this scenario is likely to be using a SAFE/Convertible Note + token warrant/token side letter. 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. 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. 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. 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. because its native tokens, GRAMS, were found to violate federal securities laws. You also dont have your tokenomics established yet either. In these cases, we can distinguish two general approaches. 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. SAFT (Simple Agreement for Future Tokens) investing capital for the right to purchase tokens or % of token supply at a specified price or discount rate. The latter can be seen as riskier due to the unknown token allocations that have yet to be made. Its no longer enough to understand the ins and outs of stock options, stock warrants, and other mechanisms of traditional equity. 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. Depending on the state of your tokenomics (is it ready or is it still in the works?) This is not legal advice. The warrant, requested by state police criminal investigator Trooper Justin Bedford of the Schuylkill Haven station, outlined the events that occurred at 222 Second St. To read more about the SAFT, how to use it, and to get a free SAFT template from Legal Nodes, visit this page. 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 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. Method of Exercise. Other investors prefer the direct alignment with the founders with the company allocation method. Net Exercise Election. You can view example token side letters with LiquiFi here. Unlike the token warrant, the token side letter doesn't specify token price or dates for token exercise. These tokens are used, similar to game credits at an arcade or tickets at a theme park, for interacting with decentralized applications (dApp). But this promise for future tokens has run afoul of the. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. On the terms and conditions set forth in the Warrant, the undersigned Holder elects to convert its Portion of the Warrant into Tokens by net exercise election pursuant to Section 2.5 of the Warrant. The token purchase right is the right to buy tokens in the future. 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. 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. During that time, the market conditions may change significantly, as it gives sufficient time even for new tokenomic models to emerge and be adopted.. Here's an easy flow to use to figure out which option may work best for your project.. Depending on the business and how it leverages the tokens into the business model, investors will value the equity and tokens accordingly. Please issue and deliver the Warrant Tokens to Holder at the network address set forth below. 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. Disclosure: I am not a lawyer, this is not legal advice, and you should seek out independent legal counsel for your unique circumstances. 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. SEFToken Inc., started the new year by announcing a new form of tokenized instrument a covered warrant. A covered warrant is an instrument, similar to an option, that gives the holder the right to buy or sell the underlying security at a certain price, up until a predetermined date. LayerZero Labs issued a letter saying it has come to an agreement with FTX, FTX Ventures and Alameda for a complete equity buyout. Either way, the important part is that the DevLab is excluded from any token matters to avoid any unnecessary regulatory risks. For example, if youre raising at $10M equity valuation for just the company, and you have tokens involved, you may also value the token network at $20M based on comparable companies. LiquiFi, Inc. does not assume any liability for reliance on the information provided herein. 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. "_ 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. 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. 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. Basically, its the token equivalent of a warrant for equity, or granting share options. 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. "_ 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. It is, however, rare for the tokenomics to be ready at such an early stage. 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. The SAFT is a derivative of the SAFE and stands for the simple agreement for future tokens. * It may be hard to determine the future tokenomics or token utility model as an early-stage company without product-market fit or a large community of users. 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. Until a token launch, there is always some non-zero chance that tokens may never be issued. In order to determine the best approach of how to structure it, it is necessary to assess the readiness of the projects tokenomics. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. Free template:Token Warrant Agreements Template and Guide. 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. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. The Holder acknowledges that the Company is not obligated, and the Company has not made any determination, to launch a Protocol or generate Tokens. Be the first to get your hands on a token sale agreement template by registering your interest here. a Token SPV). Learn, fix a problem, and get answers to your questions. Similar supply-demand issues may arise if a bunch of separate warrants are exercised at the same time. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. Something went wrong while submitting the form. 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. 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. When fundraising, you want to have a valuation benchmark by looking at the market of comparable companies in recent fundraising. |, Title:(please print or type full title) | WebManage your legal agreements (SAFTs, token warrants, token grants) and communicate the value of your future 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. 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. Investors mint warrant tokens when they deposit capital into the aggregate pool. Crypto companies differ from traditional companies in that they offer an alternative asset, the token. If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. is the founder of community-owned web3 accelerator and venture fund, Time Rich: Do Your Best Work, Live Your Best Life. Oxbridge Announces Filing of SPAC Business Combination Agreement. 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. Date of Issuance. The Token Purchase Agreement is for when tokens are just about to be issued or are already in circulation, rather than a SeedSAFT which is an advance purchase of tokens that will issued at some time in the future. Multi-Signature Support. Consult with your legal counsel on whether the SAFT or SAFTE is appropriate for your fundraising. 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. Given that various types of tokens (utility, security, payment, etc.) 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. Delivery of Tokens. Basically, its the token equivalent of a warrant for equity, or granting share options. Holder may update such network address by providing written notice in accordance with Section 7.5; provided, that the Company need not consider such updated network address to be valid until the Company has confirmed receipt of such notice and has approved such updated network address. 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. WebCheck out the article below to learn 5 Things to Know About Token Warrants. because its native KIN tokens were also found to violate securities laws. Copyright 2023 Prolific Labs Incorporated. SAFTs do not have the same signatory, the DevLab company; use the same formula for calculating the portion of investors tokens. 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. One key distinction is that a token warrant represents a right, not an obligation, to purchase future tokens. Therefore, for our template to work for more early-stage projects, we have decided to go with a discount-based model. This eradicates the need for the agreement to be validated by a lawyer. 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. 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.