SAFTs & Token Warrants — What They Are and How They Work
How to invest in the tokens of web3 startups and projects without crossing regulatory lines
The mechanics surrounding early-stage investment in company equity is a well-worn pursuit, honed over decades since HBS professor George Doriot raised a $3.5 million fund to invest in technology companies back in 1946.
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.
But what happens when you’re investing not in equity but in a web3 startup’s native tokens - an instrument that doesn’t come with the same regulatory clarity?
There are two mechanisms on offer.
SAFTs
SAFTs (secure agreement for future tokens) is one such mechanism. A SAFT is a security issued for the eventual transfer of tokens from web3 startups to investors.
