An instrument that enables established companies contemplating a token issuance to raise money via investment crowdfunding without cap table concerns, by providing investors a possible future equity interest and/or securities token.
After creating the Crowd SAFE, an instrument to offer the future right to equity, and the Token DPA, an instrument to offer the future right to tokens, we’ve created a new paradigm, an instrument that can offer both equity and securities tokens, and provide provisions for a full conversion into one or the other. The SAFE-ST (Simple Agreement for Future Equity and/or Securities Tokens) solves problems we believe other existing equity-token hybrid security instruments have.
The SAFE-ST is appropriate for companies whose equity currently has appreciable value or will have future value, due to the desire for the company to not fold once a decentralized protocol is built. Investors can appreciate the ability to receive the right to equity if tokens are never minted and distributed.
Current SAFT and SAFT-E instruments are problematic for several reasons:
A Crowd SAFE-ST gives the company flexibility over if and when its crowdfunding investors become its token-holders and/or shareholders or owners of record.
When the company’s token is ready, SAFE-ST investors will have the option to take their full investment in tokens or up to set percent of their investment in equity. If for some reason the Company fails to launch the token, investors can convert all their investment into equity.
At the end of the day, many of these projects including Republic, there's an independent value for the company that's uncorrelated with the value of the token, and we think that's how it should be.
Kendrick Nguyen, Founder of Republic
The main differentiating features of a Crowd SAFE-ST include:
Because a Crowd SAFE-ST has no ultimate expiration or maturity date, founders need not waste time or money dealing with extending maturity dates, revising interest rates or the like. The Crowd SAFE-ST can be used by companies from pre-seed to late stage, before, after, or concurrent with an equity issuance.
Possible additional equity financing or a future token pre-sale above a set value can either trigger a conversion or the company can choose to extend the term of the Crowd SAFE-ST. In the event a company is acquired or a public offering of securities occurs, the Crowd SAFE-ST is automatically converted to cash or common shares, at the Crowd SAFE-ST holder's discretion.
Investors should learn how the Crowd SAFE-ST works and the connected risks.
Crowd SAFE-ST Template.dotx
Companies should review and customize this template with the help of experienced counsel. Republic does not assume any responsibility for any consequence of using these documents.
Crowd SAFE-ST terms can be modified to meet founders' specific needs. For example, a Crowd SAFE-ST can grant investors (instead of the company) the choice to convert after an equity financing – and promptly be liquidated by the company – or extend the Crowd SAFE-ST to the next financing.
In the event the start up folds due to insolvency, Crowd SAFE-ST holders will not be entitled to any assets.
Similarly, a Crowd SAFE-ST may have pricing terms with valuation cap, pricing discount or both. Companies should review and customize these templates with the help of experienced counsel. Republic does not assume any responsibility for any consequence of using these documents.
Companies can customize the Crowd SAFE-ST to include repurchase rights. Depending on whether a company’s Crowd SAFE-ST has a cap or a discount will affect what value an investment has relative to conversion.
We appreciate the helpful feedback of friends and attorneys, and we expect we will iterate further on the Crowd SAFE-ST. Please send your comments to [email protected].
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