Crypto VC secrets: Taking huge amounts of tokens from invested projects and accumulating new projects as co-founders

Author: Sam Kessler, Coindesk; Compiler: 0xjs@黄金财经

Key points:

1. Polychain said that its former general partner Niraj Pant reached a secret deal with portfolio company Eclipse Labs in violation of the fund's policies.
2. CoinDesk investigation shows that Neel Somani, former CEO of Eclipse Labs, promised Pant $13.3 million worth of Eclipse tokens.
3. According to sources close to Eclipse, Pant promised to provide these tokens as a means of incentivizing Pant to use Polychain funds to invest in Eclipse.
4. Polychain said Pant did not disclose the deal to Polychain. Polychain later invested in Pant's AI startup Ritual.
5. Pant confirmed that Eclipse Labs allocated "advisory" tokens to him, but said he did not reach an agreement with the company until after Polychain invested.
6. This situation provides a glimpse into the typical shady deals in the crypto industry’s financing scene, where VCs have close relationships with projects and exchange their investments for tokens rather than traditional equity.

Crypto venture capital giant Polychain has accused its former employee Niraj Pant of violating the fund’s policies by engaging in behind-the-scenes dealings with portfolio company Eclipse Labs.

According to three people familiar with the matter and internal Eclipse documents reviewed by CoinDesk, former Eclipse Labs CEO Neel Somani quietly allocated Pant 5% of the upcoming Eclipse crypto token in September 2022 — just days after Pant instructed Polychain to lead the company’s $6 million pre-seed financing.

Ultimately, the share was reduced to 1.33%, which is worth $13.3 million at the token’s latest fully diluted valuation in a private investment round.

(The company’s latest funding round values ​​the token at $1 billion on a fully diluted basis, according to a source close to Eclipse Labs.)

Founded by Olaf Carlson-Wee, the first employee at cryptocurrency exchange Coinbase, Polychain is one of the largest and best-known cryptocurrency venture capital firms, with more than $11 billion under management. Pant served as a general partner at the firm from 2017 to 2023, responsible for directing the firm’s venture capital funds into promising cryptocurrency startups.

Pant has since become a prominent figure in the crypto industry and currently serves as co-founder of blockchain AI startup Ritual, another Polychain portfolio company.

Eclipse Labs has built a blockchain that merges the popular Solana and Ethereum network technologies. After leading Eclipse’s August 2022 pre-seed funding round, Polychain participated in Eclipse’s $50 million Series A in March 2024. Pant led the pre-seed deal, and a CoinDesk investigation revealed that around the same time, he received an equal amount of Eclipse crypto tokens as Polychain itself. The deal was not disclosed to most of Eclipse’s executives, advisors or large investors, according to CoinDesk’s sources. Pant insisted the arrangement was perfectly legal because it wasn’t finalized until September 2022 — just a month after Polychain invested in Eclipse. He shared legal documents with CoinDesk showing that his “advisory” allocation of Eclipse tokens was revised to 1.33% in 2024, but he declined to comment on the original size of his holding or why it was revised.

Polychain told CoinDesk it didn’t know Pant owned Eclipse tokens until after he left the firm in 2023. The fund said he should have disclosed the transaction under Polychain policies, which are designed to protect the firm and its investors from conflicts of interest.

“Polychain became aware of the financial relationship between Eclipse and Niraj Pant after he left the company,” a Polychain spokesperson said in an email to CoinDesk. “Polychain has strict policies and procedures for employees who serve as consultants. After Pant left Polychain, the company became aware that he had violated the policy and launched an investigation into the matter.”

Polychain’s statement to CoinDesk offers a glimpse into the cumbersome processes at crypto venture firms and the projects they fund. Venture firms rarely discuss personnel matters or deal structures publicly, and Polychain did not publicly disclose Pant’s policy violations until CoinDesk reached out for this article.

Murky timeline

The news is likely to add to the controversy surrounding Somani, who resigned as Eclipse CEO in May amid allegations of sexual misconduct. Somani has denied the allegations and declined to comment for this article.

Eclipse founder Neel Somani resigns as company’s “public face” amid sexual misconduct allegations. (Photo by Andrew Gonzalez)

Two sources close to Eclipse who spoke on condition of anonymity told CoinDesk that Somani committed to providing Pant with a 5% advisory share of Eclipse tokens before the pre-seed deal closed.

Pant’s stake is higher than any Eclipse investor except Polychain, which also holds 5% of Eclipse tokens, according to documents reviewed by CoinDesk. Pant’s holdings exceed the allotment of other advisors, investors and every Eclipse employee, excluding the former CEO.

Somani told his inner circle that the generous token rewards were intended to incentivize Pant to invest with Polychain’s cash and the coveted backing of the veteran venture capitalist, according to two people familiar with the matter.

Polychain officials said the arrangement was not disclosed to the venture firm or its limited partners at the time.

Tokens, not equity

The event also provides a glimpse into the cryptocurrency industry’s unique fundraising norms, with digital tokens often granted in conjunction with or in lieu of equity. Blockchain applications, digital assets and decentralized ledgers are often promoted as more transparent alternatives to traditional finance, but the ownership structures of many leading projects and cryptocurrencies remain opaque.

Eclipse Labs built a layer 2 blockchain that gives users a faster and cheaper way to transact on the Ethereum network. The network’s main appeal is that it borrows elements from the popular Solana blockchain to underpin key elements of its technical design — a detail that has helped it generate buzz in two of the largest blockchain communities.

In Eclipse’s fundraising case, token distribution was crucial because so few investors received equity in the project. Most were simply promised a slice of Eclipse tokens — a cryptocurrency that doesn’t yet exist and that Eclipse hasn’t even publicly announced.

The arrangement isn’t uncommon. Crypto investors often exchange cash for tokens rather than traditional equity, and companies rarely disclose these arrangements to the public to avoid providing ammunition to financial regulators in their fight to classify cryptocurrencies as investment securities.

“Eclipse Labs does not disclose investor holding percentages to the public,” an Eclipse Labs spokesperson told CoinDesk.

Eclipse employees, investors and advisors have been promised nearly 50% of the future Eclipse token supply, according to an internal token distribution sheet reviewed by CoinDesk.

Pant insists his consulting agreement with Eclipse was above board. He shared legal documents with CoinDesk showing he will receive 1.33% of Eclipse tokens.

Excerpt from a revised consulting agreement provided by Niraj Pant

That amount — revised based on a previously undisclosed total from Pant — is less than the 5% Pant was initially promised, according to documents and people familiar with the matter, but still more than every other Eclipse consultant and nearly all of its investors and employees.

The consulting agreement Pant signed was dated April 29, 2024 (after he left Polychain) and was signed by two parties: Neel Somani, on behalf of Eclipse Labs; and Niraj Pant, on behalf of “The Psychological Operations Co.”

Excerpt from the revised consulting agreement provided by Niraj Pant, signed by Pant and Neel Somani

Under the agreement, Psychological Operations Co. would receive token grants from Eclipse in exchange for “regular teleconference synchronization meetings” required by Eclipse. The agreement itself makes no mention of Polychain or its pre-seed investment in Eclipse.

A version of the agreement Pant provided to CoinDesk indicates it was an “amendment” to an earlier consulting agreement signed on Sept. 8, 2022, just weeks after Eclipse’s seed round closed and while he was still a general partner at Polychain.

Pant declined to identify the original agreement.

Polychain’s policy

Whether or not Pant’s advisory role was secured before the seed deal, if his time as an advisor to Eclipse was while he was still at Polychain — as his own filings attest — then he may still have been required to disclose that under the company’s ethics policy, which it describes in a lengthy disclosure filing with the SEC.

Polychain wrote in its official policy document filed with the U.S. SEC: "To monitor for any conflicts of interest, Polychain employees must pre-clear certain anticipated transactions in their personal accounts that may indicate misconduct and must disclose all personal account holdings on an initial and annual basis, as well as all transactions on a quarterly basis."

This situation is particularly noteworthy because Pant is not only a former employee of Polychain, but also the co-founder of Ritual, one of Polychain's most watched portfolio companies.

After leaving Polychain and founding Ritual last year, Pant quickly rose to become a regular on the blockchain industry speaking circuit and is seen as a thought leader at the intersection of encryption and AI. Ritual aims to decentralize the execution of AI models and is one of the projects that combine blockchain and AI, which have themselves become venture capital darlings. In November 2023, it raised $25 million from Polychain and others.

Polychain declined to comment on whether its relationship with Ritual changed as a result of Pant’s alleged policy violation, or whether it knew about the violation before investing in Ritual.

Despite the alleged policy violation, Polychain’s investment in Eclipse is likely to pay off. The value of its investment in Eclipse has grown 10 times since the firm’s first investment in 2022, according to a source close to the fund.

Correction: Niraj Pant’s initial token allocation was larger than that of Eclipse’s current CEO, according to a source familiar with the matter.