token warrant agreement token warrant agreement

When fundraising, you want to have a valuation benchmark by looking at the market of comparable companies in recent fundraising. ETF. One increasingly popular way to do this is via the issuance of token warrants.. 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. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. The Token SPV will be responsible for the distribution of tokens, meaning that the company will distribute the tokens once the token warrant is executed. Token Warrants Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. We'll be glad to chat with you. Drafting and negotiating on token side letters can take multiple days and weeks, which could delay closing a critical investment deal. 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:. In these cases, we can distinguish two general approaches. 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. 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.. 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. This company is usually registered in a jurisdiction where the legislation permits token issuance and provides defined rules for taxation of token-sale transactions. "_ 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. is ongoing, then for the purposes of Web3 fundraising, founders should consider the private token sale agreement (TSA) as a fundraising document. "_ Common Stock _" means the Company's Common Stock, par value [$0.00001] per share. Of course, a web3 company may want to offer its tokens to venture capital and accredited investors as a means of fundraising. 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. because its native KIN tokens were also found to violate securities laws. These equity types generally allow investors in web3 startups to receive a certain number of tokens commensurate with the size of their investment.. 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. 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).. While some web3 startups have moved more aggressively into token-based equity, the fundraising ecosystem hasnt changed overnight. "_ Business Day _" means a weekday on which banks are open for general banking business in San Francisco, California. Token Warrant Agreements Free Template and Guide, By submitting this form you agree with our privacy policy. We also offer a number of tools and features with employees and other token holders in mind. Legal Nodes LTD is not an attorney or a law firm and does not provide legal advice. LayerZero Labs issued a letter saying it has come to an agreement with FTX, FTX Ventures and Alameda for a complete equity buyout. American companies should be very careful about how they participate in the distribution and sale of tokens. Y = the number of Tokens equal to the portion of Holder's Portion remaining to be exercised. The token side letter or warrant represents a right, but not the obligation, to receive or purchase future tokens. 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. It gives investors the right to purchase a portion of tokens during the initial token sale, as well as fixes the price of the tokens. Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. Cannot retrieve contributors at this time. 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. Heres why: in the case of the token warrant, its signatory is NOT responsible for the conversion event and thus does not sell tokens. In such cases, classic corporate equity investment documents are also signed in addition to the token sale agreement, namely, the subscription (share purchase) agreement and the shareholders agreement. (In our template, available to download below, we chose to go with the pro-rata formula based on contributors allocation, meaning that the base for the calculation is not the entire token pool, but the part that is used for distribution to the core contributors. 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. LiquiFi provides examples of Token Side Letters with the most commonly used token pro-rata rights. a clearly defined date for issuing tokens, or a specified event that will be a trigger in the SAFT for the issuance of tokens and their transfer to investors. 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. 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 Company will promptly respond in writing to an inquiry by Holder as to the then current fair market value of one Token. To read more about the differences between the token warrant and token side letter, and download a free token side letter template, visit this page.. 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. Oops! WebToken based compensation: $ 570: $ 202: Warrant agreement period, description: INX token warrants are subject to lock-up agreements for periods of 6 to 24 months following the date the Offering was declared effective by the SEC in August 2020. 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. A SAFT, on the other hand, essentially represents a promise on the companys part to deliver future tokens to the investor at a later date., Many companies hoped the SAFT framework would serve as a means to issue utility tokens to investors without having to register them as securities. 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. 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. Chief among these mechanisms are ICOs (Initial Coin Offerings), SAFTs (Simple Agreements for Future Tokens) and token warrants, the last of which well explore in this guide. The type of agreement needs to be: Create Agreement - Equity Raise with Token Warrant for Web3 Investors, Fundraising I need 2 templates. Nothing should be construed as legal advice, Pulley's SOC 1 Type 1 audit was performed by BARR advisory. "_ Company Intellectual Property _" means all patents, patent applications, registered and unregistered trademarks, trademark applications, registered and unregistered service marks, service mark applications, tradenames, copyrights, trade secrets, domain names, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, and in any and all such cases that are owned by the Company. These warrants are often detachable, meaning that they can be separated from the tokens and sold on the secondary markets before expiration. 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. 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. Token warrants are an increasingly popular fundraising option among web3 startups, but there are a few peculiarities to how they work. 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. 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). 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. "_ Warrant _" means this Warrant to Purchase Tokens and any warrant(s) delivered in substitution or exchange therefor, as provided herein. Be the first to get your hands on a token sale agreement template by registering your interest here. 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. Here's an easy flow to use to figure out which option may work best for your project.. The latest industry news, updates and info. 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. | Date: | Date: | 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. Its no longer enough to understand the ins and outs of stock options, stock warrants, and other mechanisms of traditional equity. Multi-Signature Support. The Company have accounted for The use of Tokens in connection with the Platform may be governed by other On February 28, 2023, the Company issued an unsecured promissory note (the "Note") in the amount of $875,000. As with any legal agreement, the token warrant comprises a number of terms and conditions. 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. Investor Agreement In order to be deemed eligible for the purchase of the Companys Tokens, the Investors agrees to and warrants that: The investor is an accredited or authorized investor in their jurisdiction. If the DevLab is registered in the U.S. a founder should strongly consider using a standard SAFE document. Web[Meta] Sticky Comment. 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. If the tokens have already been issued and the process of their distribution (private/public sale, airdrops, issuance of token options, etc.) As it is a separate entity, the Token SPV can handle these processes, shielding the DevLab from any involvement in the token distribution process. 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. 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. If the DevLab is registered in a non-US jurisdiction (in Hong Kong, the UK, and some European countries) and, in addition to using a standard SAFE, also plans to issue to its investors the rights to tokens, the DevLab will have more flexibility in choosing between the token warrant and a token side letter. Supporting. 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. Come up with potential token allocations using recent token launches and benchmarks, understanding this could still change drastically in the future*. 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. Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor. 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. They reduce the time and cost of financings and free principals time to focus on high-level issues. Homepage. Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior. 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. Otherwise, the United States is likely to face a brain drain at a time when it can ill afford it. Unlike SAFTs, token warrants are essentially an informal agreement that is not registered with the SEC and does not promise future tokens. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. 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. WebWe are engaging several investors who have asked for an offer and agreement for fundraising for our web3 product in development. In this case, the best option may be to sign a simple agreement for future tokens (SAFT).. WebIts not just vanilla SAFEs anymore, its all manner of complicated token and warrant agreements. 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. 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 This commit does not belong to any branch on this repository, and may belong to a fork outside of the repository. "Locked Tokens" means Tokens issued under the Warrant that remain subject to a lockup or any additional restrictions pursuant to the terms thereof. 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. 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. 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. 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. A tag already exists with the provided branch name. 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.. "_ 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. - 10X jurisdictions. See below for an illustrative example where the method used can result in different outcomes for investors depending on the token allocation. 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. 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. Developed Nations. Lets explore these in the next chapters of this guide.. Another important point that deserves attention is the process of assigning the token warrant from the DevLab to the Token SPV. | An investor with a 10% ownership stake would be entitled to purchase only 2% of the total tokens (10% x 20% = 2%)., Token warrants are often mentioned alongside another token-based equity mechanism known as a SAFT, or Simple Agreement for Future Tokens., The structure of a SAFT is based on a similar equity-based mechanism called a SAFE (Simple Agreement for Future Equity). The token purchase right is the right to buy tokens in the future. WebCheck out the article below to learn 5 Things to Know About Token Warrants. In summary, if a DevLab is registered in the US, then it's best to use a token warrant along with SAFE. Also, the investor can claim the Token SPV shares to consolidate their control rights. I co-authored this article with Joseph Perkins, Mark Janoff, and Robert Moore. Either way, the important part is that the DevLab is excluded from any token matters to avoid any unnecessary regulatory risks. 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. 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. "_ 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). Something went wrong while submitting the form.