• Polychain says Niraj Pant, its former general partner, made a secret deal with portfolio company Eclipse Labs that broke the fund's policies.
• A CoinDesk investigation reveals former Eclipse Labs CEO Neel Somani pledged Pant a stake in Eclipse tokens worth $13.3 million.
• Somani pledged the tokens as an incentive for Pant to secure Polychain's funding, according to sources close to Eclipse.
• Polychain says Pant did not disclose the deal to the fund. It later invested in Ritual, Pant's AI startup.
• Pant confirms Eclipse Labs allocated him "adviser" tokens but says he didn't strike a deal with the company until after Polychain invested.
• The situation provides a glimpse into the shadowy dealings that have come to typify the crypto industry's fundraising scene, where venture firms cozy up to projects and invest in exchange for tokens instead of traditional equity.

Crypto venture capital giant Polychain has accused Niraj Pant, a former employee, of making a backroom deal with portfolio company Eclipse Labs that broke the fund's policies.

According to three sources close to the situation and internal Eclipse documents reviewed by CoinDesk, Neel Somani, the former CEO of Eclipse Labs, quietly allocated Pant 5% of a forthcoming Eclipse crypto token in September 2022 – just days after Pant directed Polychain to lead the company's $6 million pre-seed funding round.

The allocation was eventually reduced to 1.33%, worth $13.3 million at the token's most recent fully diluted valuation in a private investment round. (According to a source close to Eclipse Labs, the company's latest funding round valued the token at a fully diluted value (FDV) of $1 billion.)

Polychain was founded by Olaf Carlson-Wee, the first employee of crypto exchange Coinbase, and is one of the largest and best-known crypto venture firms, with more than $11 billion in assets under management. Pant was a general partner there from 2017 to 2023, tasked with steering the firm's venture money into promising crypto startups.

Pant has since become a prominent figure in the crypto industry, currently serving as co-founder of the blockchain AI startup Ritual, another portfolio investment of Polychain's.

Eclipse Labs builds a blockchain that mixes technology from the popular Solana and Ethereum networks. After leading Eclipse's August 2022 pre-seed funding round, Polychain went on to participate in its $50 million Series A funding round in March 2024.

Pant spearheaded the pre-seed deal, and a CoinDesk investigation revealed that around that same time, he was allotted about as many Eclipse crypto tokens as Polychain itself. The deal was not, according to CoinDesk's sources, disclosed to most of Eclipse's executives, advisors or large investors.

Pant insists the arrangement was completely kosher because it wasn't finalized until September 2022 – the month after Polychain had already 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 declined to comment on the size of his original stake, or why it was altered.

Polychain told CoinDesk it was unaware that Pant had a financial stake in Eclipse until after he left the firm in 2023. The fund said he should have disclosed the deal under its policies , which are meant to protect the firm and its investors against conflicts of interest.

"Polychain was unaware of the financial relationship between Eclipse and Niraj Pant until after his departure from the firm," a Polychain spokesperson said in an email to CoinDesk. "Polychain has robust policies and procedures surrounding employees serving in advisory roles. Following Mr. Pant’s departure from Polychain, the firm became aware that he violated its policies and investigated the matter."

Polychain's statement to CoinDesk grants a rare insight into the sausage-making process of the cozy world of crypto VC 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 breach until CoinDesk reached out for this story.

A murky timeline

The revelation could deepen the controversial narrative surrounding Somani, who stepped aside as Eclipse's CEO in May amid allegations of sexual misconduct. Somani denied those allegations and declined to comment for this story.

Two sources close to Eclipse who spoke to CoinDesk on the condition of anonymity claim Somani promised Pant his 5% advisory stake in Eclipse tokens before the pre-seed deal even closed.

According to documents reviewed by CoinDesk, Pant's stake was higher than that of any Eclipse investor except Polychain, which was also slotted for 5% of Eclipse's token. Pant's stake exceeded the allocations to other advisers, investors and every Eclipse employee except for the former CEO.

Somani told his inner circle that the generous token grant was meant to incentivize Pant to secure Polychain's cash and the veteran VC's coveted endorsement, according to two people familiar with the matter.

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

Tokens, not equity

The episode also provides a glimpse into the dealings that have come to typify the crypto industry's unique fundraising norms, with digital tokens often granted alongside any equity, or in lieu of it. Blockchain apps, digital assets and decentralized ledgers are often pitched as a more transparent alternative to traditional finance, but the ownership structures of many leading projects and cryptocurrencies remain opaque.

Eclipse Labs builds a layer-2 blockchain that offers users a faster and cheaper way to transact on the Ethereum network. The network's main draw is that it borrows elements of the popular Solana blockchain to power key elements of its technical design – a detail that has helped it earn buzz across two of the largest blockchain communities.

In the case of Eclipse's fundraising, the token allocations were crucial because few investors received equity in the project. Most were simply promised a cut of Eclipse's token – a cryptocurrency that doesn't exist yet and that Eclipse has not even publicly announced.

This setup isn't atypical. Crypto investors frequently offer cash in exchange for tokens rather than traditional equity, and companies rarely disclose these arrangements to the public, lest they arm financial regulators with ammunition in their fight to classify cryptocurrencies as investment securities.

"Eclipse Labs does not disclose investor ownership percentages to the public," a spokesperson for Eclipse Labs told CoinDesk.

According to internal token allocation tables reviewed by CoinDesk, Eclipse's employees, investors and advisers have already been promised nearly 50% of the supply of a future Eclipse token.

Pant insists that his own advisory agreement with Eclipse was above board. He shared legal documents with CoinDesk showing that he is set to receive a 1.33% stake in Eclipse’s token.

This sum – revised from an earlier total that Pant did not disclose – is lower than the 5% that documents and people familiar with the matter reveal Pant was initially promised, but still higher than that of every other Eclipse adviser and almost all of its investors and employees.

The advisory agreement shared by Pant is dated April 29, 2024 – after he left Polychain – and signed by two parties: Neel Somani, on behalf of Eclipse Labs; and Niraj Pant, on behalf of "The Psychological Operations Co."

Under the agreement, Psychological Operations Co. would receive a grant of Eclipse's tokens in exchange for "periodic teleconference sync meetings" as requested by Eclipse. The agreement itself says nothing about Polychain or its pre-seed investment into Eclipse.

The version of the agreement provided to CoinDesk by Pant states that it is an "amendment" to an earlier advisory agreement dated Sept. 8, 2022 – just weeks after Eclipse's pre-seed round would have closed and while he was still a general partner at Polychain.

Pant declined to share that original agreement.

Polychain's policies

Whether or not Pant’s advisership was finalized before the pre-seed deal, if his initial advisership with Eclipse started while he was still at Polychain – as his own documents attest – then he may still have been required to disclose this under the firm’s ethics policies, which the firm described in a lengthy disclosure to the U.S. Securities and Exchange Commission.

In an official policy filing with the SEC, Polychain writes: “In order to monitor any conflict of interest, Polychain employees are required to pre-clear certain contemplated transactions in their personal accounts which may present the appearance of impropriety, and must disclose on an initial and annual basis the holdings of all personal accounts, as well as all transactions on a quarterly basis.”

The situation is particularly remarkable because Pant is not only an ex-employee of Polychain but also the co-founder of Ritual, one of Polychain's buzziest portfolio companies.

After departing Polychain and founding Ritual last year, Pant quickly rose to become a staple of the blockchain industry's speaker circuit , looked to as a thought leader on the intersection between crypto and artificial intelligence. Ritual, which aims to decentralize the execution of AI models, is among a category of blockchain-meets-AI projects that have evolved into a venture darling in its own right. Last November, it raised $25 million from Polychain and others.

Polychain declined to comment on whether its relationship with Ritual has changed as a result of Pant's supposed policy breach, or whether it learned of the breach before it invested in Ritual.

Despite the alleged policy breach, Polychain's investment in Eclipse might still pay off. According to a source close to the fund, its stake in Eclipse has increased in value 10-fold since the company initially invested in 2022.

If you have your own information on token allocations or VC funding that might be worthy of a separate investigation, please email Sam Kessler at [email protected].

CORRECTION (July 9, 2024, 17:33 UTC): Niraj Pant's original token allocation was larger than the current CEO of Eclipse's, according to someone familiar with the matter.

CORRECTION (July 9, 2024, 18:36 UTC): Pant is Ritual's co-founder. The company does not have a CEO.