"_ 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)). 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. 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).. 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. (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. Thank you! 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. But this promise for future tokens has run afoul of the Securities and Exchange Commission (SEC). 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. Jonathan Chan is a partner in the corporate practice at Wilson Sonsini Goodrich & Rosati. You signed in with another tab or window. 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. Issued on ____________, 2022 (the " Issue Date"). Your submission has been received! Supporting. You can speak to the team at Legal Nodes to find out more about how we can help you use these documents. Because SAFTs are considered Talk to your legal counsel to devise the right strategy for your situation and fundraising needs. 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. 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. 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. 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. 1. in equity but in a web3 startups native tokens - an instrument that doesnt come with the same regulatory clarity? Investors have one alternative that, as of May 2022, is growing in popularity amongst web3 venture funds the token warrant. Many Git commands accept both tag and branch names, so creating this branch may cause unexpected behavior. At Legal Nodes, we help Web3 founders to legally structure fundraising effectively via a single legal platform. 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. Subject to the terms and conditions of this Warrant, Holder may exercise this Warrant, at any time or from time to time, on any Business Day on or after the date the Tokens are generated and available for issuance and delivery (the "_ Token Launch _") and before the Expiration Date, for Holder's Portion. 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. 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. LayerZero claims it is well-capitalized with approximately 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. The terms and additional documents you require may depend on whether you plan to launch a DAO or not. But, as with all things crypto (and equity, for that matter), you wont want to dive in blindly. There are a couple of reasons why a SAFT is usually not signed before these steps have taken place. One increasingly popular way to do this is via the issuance of token warrants.. When we say tokens, were referring broadly to blockchain-based digital assets. Generally, founders want to raise more capital and dilute less equity/tokens, while the incentive is reversed for investors. If you plan to allocate a large percentage of the tokens to the company, it may be better to use the conversion rate methodology. (please print or type complete name of entity) | WebThis particular warrant agreement allows Hedge Fund Mast Hill to buy bulk shares at 0.175, which is well above the current stock price. 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. The token purchase right is the right to buy tokens in the future. 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. WebCheck out the article below to learn 5 Things to Know About Token Warrants. "Token(s)" means the digital assets created and issued by the Company, or any Parent, Subsidiary, Affiliate, foundation formed for the purposes of issuing a Token native to a Protocol or Founder (provided that, with respect to a Founder, no such asset shall constitute Token(s) for purposes hereof unless such asset is (i) based on the Protocol and (ii) created prior to the three month anniversary of the termination of services of such Founder to the Company or another Token Issuer) of the Company or their respective successors or assigns (collectively, "_ Token Issuers _"), that are developed using Company Intellectual Property; provided, that Tokens shall not include any digital assets that may be implemented by the holders of the Tokens by governance proposal and votes, so long as any such tokens (x) shall be issued in accordance with the governance terms of the Protocol or any Token Issuer's network or Protocol and not in any Token Issuer's discretion and (y) that Holder shall be reasonably able to participate in any staking, rewards or inflationary or dilutive controls introduced through any such proposal to the same extent as any other similarly situated holder of the Tokens. 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. In order to determine the best approach of how to structure it, it is necessary to assess the readiness of the projects tokenomics. "_ 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). 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.. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. SAFE (Simple Agreement for Future Equity), track both traditional equity and tokens in the same place. 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? 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. This agreement sets out the WebUnless otherwise stated herein, this Token Sale Agreement governs only your purchase of Tokens. 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, This could be done as soon as the Token SPV is incorporated. A SAFT broadly follows the same principles as a SAFE (Simple Agreement for Future Equity) or, our SAFE equivalent, a The number of tokens that will be issued is commensurate with the In recent years, the rise of cryptocurrency and web3 startups has added a new chapter to the book on what early-stage investors need to know. The number of tokens issued to the holder upon exercise of the warrant is typically commensurate with the holders investment stake in the company, though it may also be affected by the total allocation of tokens for investors. The Token Warrant will be for companies who might wish to issue tokens to investors as a sweetener for making an equity investment in a funding round, or perhaps to an advisor in return for services. Also, the investor can claim the Token SPV shares to consolidate their control rights. "_ SAFE _" shall mean any Simple Agreement for Future Equity or substantially similar agreement entered into by the Company. |. You should consult with a legal specialist such as a lawyer, who is licensed in the country where the documents might apply. In some cases, token warrants may even be used in conjunction with SAFEs or other more traditional equity mechanisms.

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