Can an ADGM VC Fund Invest in Crypto Tokens? Applying FUNDS 4.1.6 to Early-Stage Digital Assets

By CRYPTOVERSE Legal Consultancy

A venture capital fund finds a promising startup building blockchain infrastructure. The founders are raising capital through equity, but they also offer investors the right to receive tokens when the network launches.

Can an ADGM venture capital fund take that deal?

The answer may be yes. The more useful question is: what exactly is the fund acquiring, who issued it, and does the investment fit the ADGM definition of a Venture Capital Fund?

That distinction matters. A fund investing in an early-stage crypto business is doing something different from a fund buying Bitcoin on an exchange. Both involve digital assets, but they do not necessarily fit the same regulatory framework.

The starting point: what FUNDS 4.1.6 permits

Under the ADGM Financial Services Regulatory Authority’s (FSRA) FUNDS Rule 4.1.6, a Venture Capital Fund may invest in specified assets issued by a company at an early stage of development. The categories include:

• Securities or Virtual Assets that are not admitted to trading on an exchange;
• Instruments enabling the fund to acquire Securities or Virtual Assets;
• Governance tokens that allow holders to participate in a crypto project’s on-chain governance;
• Utility tokens used to access the products or services of such a project;
• Other representations of value in the form of digital tokens; and
• Rights to buy certain tokens in those categories.

The rule therefore reaches beyond traditional startup shares. It can accommodate token investments and contractual rights to acquire tokens. But the words at the end of the investment list are crucial: the assets must have been issued by a company at an early stage of development. The fund must also satisfy the rule’s other conditions, including being closed-ended and meeting the applicable fund classification requirements. (Rulebook)

A token investment is not automatically a VC investment

Imagine two investment proposals.

In the first, an early-stage company is developing a blockchain payments platform. It offers the fund shares and a contractual right to receive tokens if its network launches. That proposal has a plausible route through FUNDS 4.1.6, subject to reviewing the documents and the eventual tokens.

In the second, a fund proposes to buy an established cryptoasset on an exchange because its manager expects the price to rise. That looks like a digital asset trading strategy. It is difficult to treat the purchase as an investment in an asset issued by an early-stage company simply because the crypto sector is innovative.

The difference is the venture investment thesis and the legal character of the asset, not the presence of the word crypto in the pitch deck.

These are screening questions, not automatic approvals or rejections. A token’s label, marketing materials and ticker symbol cannot substitute for examining its legal rights and issuance history.

Where do SAFTs and token warrants fit?

Early-stage digital asset deals often happen before a token exists. A sponsor might invest under a simple agreement for future tokens (SAFT), a token warrant, or another agreement that gives the fund a right to acquire an asset later.

FUNDS 4.1.6 expressly includes certain instruments enabling a fund to acquire Securities or Virtual Assets and rights to buy specified tokens. That gives sponsors a potential route for structuring a pre-launch investment. The FSRA’s consultation materials also discussed SAFTs and token warrants as examples of the arrangements used by startups. (Rulebook)

The details still matter. Before signing, a manager should be able to answer:

1. Which entity owes the delivery obligation? The company raising money may differ from the entity that will issue the token.
2. What will the fund receive? A present token, a future token, a security, or a contractual claim may each require different analysis.
3. What happens if the token changes? The rights described at fundraising may differ from the rights delivered at launch.
4. Can the fund hold what it receives? Custody, valuation and exit arrangements need to work when the asset is delivered, not just when the agreement is signed.

A broadly drafted right to “future ecosystem tokens” may sound flexible commercially. It can create a harder regulatory question if the issuer, token rights or delivery mechanics are unclear.

The issuer question can decide the outcome

In digital asset projects, the development company, token issuer, foundation and operating entity are sometimes different organisations. FUNDS 4.1.6 makes the identity and stage of the issuing company central to the VC Fund analysis. (Rulebook)

Consider a startup that develops a protocol while a separate foundation issues its tokens. It would be risky to assume that an investment in those tokens qualifies simply because the startup is young. The manager needs to trace the issuance and determine how the transaction fits the actual wording of the rule.

This is particularly important for projects described as “decentralised.” If the fund cannot identify a company that issued the relevant asset, or establish that the issuer is at an early stage of development, the manager has a material eligibility question to resolve before treating the position as a VC Fund investment.

Does permission to invest mean permission to do everything else?

No. The fund’s eligibility to hold a token is one question; the manager’s regulated activities and operating arrangements are others.

A proposed strategy may involve token acquisition, safekeeping, staking, lending, trading, or arrangements through an affiliated platform. Those activities should be mapped separately against the manager’s Financial Services Permission and the relevant FSRA requirements. A permission to manage a Venture Capital Fund should not be read as a blanket permission to operate an exchange, provide custody services, or conduct every activity involving Virtual Assets.

The manager must also be able to explain the investment strategy and its risks to investors. For a token strategy, that means addressing matters such as private key control, smart contract vulnerabilities, token delivery, liquidity, valuation and the possibility that the project never launches. ADGM’s prospectus rules require information sufficient for an investor to make an informed decision. (Rulebook)

A practical test before the fund commits

For each proposed digital asset investment, an ADGM VC Fund sponsor should work through five questions:

1. What is the asset? Identify the rights the fund receives now and any rights it may receive later.

2. Which part of FUNDS 4.1.6 covers it? Map the asset to the relevant category in the rule. Do not rely solely on terms such as utility token or Web3 investment.

3. Who issued it? Verify the legal issuer and whether that company is at an early stage of development.

4. How will the fund hold and realise it? Test custody, valuation, transfer restrictions and the proposed exit route before committing capital.

5. Does the manager’s permission cover the proposed business model? Check the activities the manager itself will perform, along with the fund’s structure and investor disclosures.

The FSRA’s September 2026 fund framework update also introduced changes affecting specialised fund managers, including Venture Capital Fund Managers. Sponsors planning a new fund should assess the current manager framework alongside the fund’s investment eligibility. (adgm.com)

The takeaway

ADGM’s VC Fund rule can accommodate early-stage digital asset investments. It expressly contemplates more than startup equity, including certain Virtual Assets, governance and utility tokens, and rights to acquire tokens. But it does not turn every crypto purchase into a qualifying venture capital investment.

For a sponsor, the most effective approach is to test each proposed deal against FUNDS 4.1.6 before promising investors a broad “crypto VC” mandate. That early review can shape the fund documents, the manager’s licence application and the transaction terms while there is still room to change them.

CRYPTOVERSE Legal Consultancy advises sponsors on ADGM fund structuring, FSRA fund manager licensing and the regulatory treatment of digital asset investment strategies.

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