Token or Equity or Both? Cap Table Strategy in Web3
Startups in crypto face a twist traditional founders don't: their cap table may include both tokens and equity. Ownership structure affects fundraising, governance, taxes, and your long-term roadmap.
Get it right, and dual-asset planning helps raise capital and attract talent without giving away the store. Get it wrong, and it can spook investors, trigger tax issues, or create governance complexity.
Tokens Are Usually Not Equity—But Investors Might Treat Them That Way
One conversation we hear often: "Let's reserve 20% of the token supply for investors. That's market, right?"
Maybe. But are those tokens compensating for risk, like equity? Will they carry governance rights, revenue share, or voting control? Are they locked or transferable?
Investors often treat token allocations as economic rights. They apply a preferred stock lens to assess dilution, upside, and liquidity. That's why token plans deserve the same rigor as equity cap tables.
SAFEs, SAFTs, and the Risk of Double Dilution
When teams raise through SAFEs and later issue SAFTs, they sometimes end up building two dilution tracks—one for equity, one for tokens. This can leave less on the table than expected.
It's critical to model fully diluted ownership across both instruments. That includes unlock schedules, transfer rights, vesting, and economic entitlements—whether governance, utility, or access-based.
When Tokens Are the Security
Sometimes, tokens aren't just for access or utility. In many cases, they represent ownership. Digital asset securities issued under Reg D or Reg S may function like tokenized shares—with dividends, preferences, or voting rights.
This model opens up new investor interest and liquidity paths. But it also introduces regulatory requirements: lockups, disclosures, and broker-dealer or custodian rules.
If tokens act like equity, they require the same governance and transparency.
Foundations, Labs, and Who Controls What
A common structure in crypto includes a U.S. C-Corp ("Labs"), an offshore Foundation (often Cayman or BVI), and a token issued by the Foundation. This model can help with regulatory positioning—but it introduces questions founders must address.
Who controls token governance? How does Labs' equity translate into influence over the token ecosystem? What happens if investor rights diverge between the two entities?
Why This Matters to Founders and Investors
Thoughtful cap table planning signals execution maturity. It shows an understanding of how control, value, and ownership intersect. It also simplifies recruiting, reduces cleanup risk, and facilitates future rounds.
If the token is central to the product, it deserves the same strategic attention as equity. Treating them as separate universes often leads to misalignment.
Hidden Terms That Undermine Token Strategy
Even with a solid allocation plan, buried terms can cause issues. Token-friendly rights in early-stage SAFEs or side letters can limit future flexibility.
Non-dilutable token rights may appear harmless but often result in inflexible allocations. Short or missing lockups can increase volatility and misalign incentives.
Smart founders address these issues early. Doing so preserves options, protects governance, and reduces downstream legal friction.
Final Thought
Your cap table is your blueprint. In crypto, it lives in two layers.
The strongest strategies integrate tokens and equity from the start. When that happens, founders raise cleaner, scale faster, and avoid the missteps that derail momentum. If you want a deeper dive, a16z Crypto offers a highly readable breakdown of how token terms can silently distort ownership and governance. It's founder-focused, practical, and essential reading:
Token Rights in Term Sheets: How to Avoid Predatory Deals
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
