When raising capital for crypto projects, choosing the right investment structure is critical to aligning with investor goals and the stage of the project. In the early phases, many projects opt for a SAFT (Simple Agreement for Future Tokens). This instrument is preferred because early-stage investors are usually more interested in acquiring tokens rather than equity. At this point, while the risk is higher due to the project’s developmental stage, the potential for substantial returns is equally high if the token’s value appreciates after the project is launched.

 

As the project progresses and reaches the Token Generation Event (TGE), additional funding may be required for further development or scaling. At this stage, a Token Purchase Agreement becomes relevant. Investors can purchase tokens that have either already been issued or are about to be made available. This option appeals to investors looking for lower risks, as the project has matured and the tokens are typically available for use or trading.

 

For more established companies, investors often look to acquire equity rather than just tokens. In such cases, a SAFE (Simple Agreement for Future Equity) is the proper instrument, giving investors the right to future equity in the company. A SAFE may be paired with a Token Purchase Agreement if the project has already had its TGE, or in rarer cases, with a SAFT if the project is still pre-TGE. This balanced approach allows investors to gain exposure to both the company’s equity and the tokens' potential market value.

 

It’s also worth mentioning that ICOs (Initial Coin Offerings), which were once a popular method for raising funds in the crypto space, have become less common. The risk of tokens being classified as securities has increased regulatory scrutiny, leading to tougher penalties for non-compliance. However, ICOs could become viable again in the future as regulatory frameworks become clearer, allowing for safer participation in token sales.

 

Before drafting any of these agreements, one of the most important considerations is choosing the appropriate jurisdiction and corporate structure. This decision influences the project’s compliance with securities regulations, tax implications, and the enforceability of equity and token transfers. The jurisdiction also impacts how intellectual property (IP) is protected and how the legal structure supports future growth and operations. It is crucial to ensure that the chosen jurisdiction is favorable for both the company’s operational needs and investor protection.

 

Additionally, it’s essential to address key elements in the agreement, such as regulatory compliance, vesting schedules, and lock-up periods. Investors need clarity on when and how they will receive their tokens or equity and any restrictions on trading or transferring those assets. Well-defined terms on liquidity, exit strategies, and investor rights ensure that all parties are on the same page and reduce ambiguity. Furthermore, intellectual property protection must be included to safeguard the project’s assets and avoid future disputes.

 

In conclusion, drafting investment agreements like SAFTs, Token Purchase Agreements, and SAFEs requires more than just legal documentation. It involves a comprehensive understanding of the business model, regulatory environment, and investor expectations. At MMLaw, we specialize in providing tailored advice to help clients navigate these complexities, ensuring that the investment structure is robust, compliant, and aligned with the project’s long-term success in the crypto space.