Not all coin offerings involve the issuance of securities. Sometimes the utility and other functions of a given issued token place the coin outside the realm of a securities offering.

But some coins are securites, and indeed many coin issuers embrace the fact straight up - for instance, by claiming a Reg D or other exemption from registration requirements. In such cases, you might think that investors keen on securing participation rights in their portfolio companies would seem to have ICOs covered, if their participation rights are expressed, as they typically are, with reference to "securities."

But not so fast: what if the issued tokens, tradeable, liquid and valuable as they may turn out to be, aren't by their terms convertible into "equity securities" of their issuer? If you're using the 2013 draft of the NVCA template Investors' Rights Agreement, maybe the tokens issued in a given coin offering, acknowledged to be "securities," still fall outside the scope of "securities" in which you have participation rights:

“'New Securities' means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities."

Furthermore, what of those tokens issued in ICOs that do, in fact, have immediate utility with reference to a system or micro-economy? In other words, what of tokens which are not securities but should instead be thought of as a currency, or scrip with utility in a given system of exchange, or other crypto-asset?

We think investors who bargain for participation rights should give thought to whether they also intend to have rights to participate in ICOs or other token offerings, when they make equity or convertible security investments in early stage companies for whom token offerings may end up making business sense. Similarly, entrepreneurs and early stage companies should be as thoughtful about granting participation rights in token offerings, as they are in granting participation rights in equity securities.

Below is an early stab at a expanding the scope of a contractual participation right, to fulfill a general intention to include not only equity securities of a given issuer, but also ICOs and other token offerings - regardless of whether the coins so offered and issued are, or are not, securities. Keep in mind that this language would likely need to be customized for the given issuer.

“'New Securities' also include virtual currencies, blockchain tokens, cryptocurrencies or similar digital assets that may be used as consideration in verifiable electronic transactions (or future rights, including derivative contracts, to receive the foregoing), whether or not the foregoing has been deemed (or is likely to be deemed) a ‘security’ by any applicable regulatory authority."

Image: borrowed under CC BY-SA 4.0 license; found on Mediachain blog.