SAFT is the investment technique Sequoia used with both Orchid Labs and its other blockchain start up called Filecoin. SAFTs are popular in the blockchain space because they allow investors to put money toward the technology, rather than a centralized company.
SAFTs are particularly useful for investing in products like the Orchid protocol, which ultimately could become an open source project supported by a community of engineers, rather than a structured team. Huang compared this to the bitcoin protocol, which was developed by a team but has spread like wildfire since being left out in the wild.
Most venture capital firms — Sequoia included — are used to the old equity model, in which investors purchase private shares of a company, often while mentoring the founders to help the company reach its full potential.
SAFTs — in which investors are promised a set number of tokens which don't yet have any value — are such a new way of investing, however, that many venture capitalists are writing the rules on the go, Huang said. In the long run though, he hopes to see some of the best practices developed in venture capital trickle into this new way of doing business.
"One of the big distinctions between equity and tokens is that there are more protections around equity. Investing in SAFTs is new territory; and I think what you're seeing is that a lot of this ecosystem is learning in real time how best to structure these things," he said.
"We're really interested in seeing more of these venture mechanisms enter the blockchain space. It's not to say that you have to copy exactly what evolved on the equity side, but you don't have to reinvent from scratch either and there are definitely best practices."