Startups are raising money from venture capitalists and other wealthy investors by rewarding them with new cryptocurrencies, in a bid to avoid much of the cost and regulation of traditional stock sales.
Protocol Labs Inc. pioneered the structure last year when it raised nearly $200 million from investors, including venture capitalists Sequoia Capital and Andreessen Horowitz. Since then, more than 60 companies have reported raising $564 million using the concept, according to regulatory filings.
One problem: Regulators haven’t recognized the arrangement as a valid way to raise money in compliance with investor-protection laws.
The strategy is known as a presale of tokens, or Simple Agreement for Future Tokens. Companies say the SAFT is a credible attempt to fit the new world of cryptocurrencies into laws that date to the Great Depression.