Frequently Asked Questions
For Issuers
How do I create a CAFÉ?
Launching a CAFÉ is a Two-Step process, which only needs to be done once. Once launched, a CAFÉ can operate for years without any overhead or maintenance.
- Decide on a name and an equity allocation. How much are you hoping to raise? How much equity do you want to allocate to your CAFÉ investors? Do you also want your employees to be incentivized with CAFÉ? Do you have a SAFE that your investors would want to convert to a CAFÉ?
- Draft your Continuous Securities Offering, making all the decisions as to how the CAFÉ will operate when launched, during the time it is active and on conversion.
Is there a minimum amount of money that can be raised with a CAFÉ?
Technically no, however launch fees can become excessive (>5%) if the dollar amount of the CAFÉ Equity Allocation is below $500,000.
What is the “Initial CAFÉ Equity Allocation?”
This refers to 1) the original dilution percentage allocated to the CAFÉ and 2) the dollar amount of the minimum capital raise planned for the CAFÉ during which the $Token price remains fixed.
Can the company modify its equity allocation?
Yes, but by default only to the advantage of CAFÉ holders. The company can increase the equity allocation of the CAFÉ offering but can never decrease it.
Can the CAFÉ offering be paused?
Yes. The CAFÉ can be paused at the discretion of the Company.
Can I still issue Convertible Notes and other securities if I have a CAFÉ?
Yes – having a CAFÉ does not preclude a company from raising capital with any other type of security.
For Investors
Why invest in a company’s CAFÉ?
The reasons for making an investment in a company’s CAFÉ are the same as investing in any other security of the company: an expectation that the company will do well and its value will increase. A unique feature of a CAFÉ is that it offers investors the opportunity to realize a gain in two ways:
How do I invest in a company’s CAFÉ?
CAFÉ $Tokens can be purchased directly through the company’s website or app.
When will a CAFÉ convert to equity?
A CAFÉ converts to equity when a “triggering event” occurs.
If the conversion results from an IPO, CAFÉ holders receive CAFÉ Preferred stock.
If the conversion results from a sale of the company or a liquidation, CAFÉ holders receive their proportionate share of distributable proceeds based on liquidation priorities of the company’s senior securities.
In the aggregate, the amount to be received by all CAFÉ holders will be based on the equity allocation chosen by the company when the CAFÉ was launched. Each individual CAFÉ holder will receive, in turn, their proportionate share based on their percentage ownership of the CAFÉ.
Where is my CAFÉ recorded?
The CAFÉ is a fully-digital security. Proof of Participation is recorded on the Ethereum blockchain.
Why is there a “$” sign in the word “$Token?”
It’s not a requirement, but most companies that launch a CAFÉ use the dollar sign to indicate the security is a digital cryptocurrency.
Can I sell $Tokens before the CAFÉ converts to equity?
Yes. By default, $Tokens issued under a Reg D 506(c) exemption can trade any time after a one-year lockup period;. $Tokens issued under a Reg A+ exemption do not have a lock-up period and can be traded at any time.
Does the CAFÉ provide voting rights?
No. By default, the CAFÉ does not provide its holders governance or information rights.
What is an “accredited” investor?
To purchase CAFÉ $Tokens, an investor must be “accredited” or, subject to certain limitations, “sophisticated.” An accredited must qualify for at least one of the following requirements:
- A director, executive officer or general partner of the Company.
- A person whose individual net worth or joint net worth with spouse (or spousal equivalent) at the time of purchase exceeds $1,000,000 (excluding the individual’s primary residence and any mortgage, if applicable
- A person who had individual income in excess of $200,000 in each of the two most recent years, or joint income with spouse (or spousal equivalent) in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same level of income in the current year.
What is a “sophisticated” investor?
“Sophisticated” investors are permitted to purchase CAFÉ securities under Reg D 506(b) even if they are not accredited. To qualify, an investor must “have superior knowledge of business and financial matters” and “have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.”
Why choose Sterling Advisory Services to launch your CAFÉ?
Brothers Richard and Gary Nacht bring a unique combination of comprehensive legal and business advisory services to each customized CAFÉ they create for their clients. Going far beyond what would be available from a traditional law or investment banking firm, their specialized version of the commonly used CAFÉ Offering Agreement is significantly more robust for business owners, all delivered faster and for as little as half the cost.”