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Top crypto VC Polychain says former general partner entered into undisclosed collateral deal with portfolio company
Cryptocurrency venture capital giant Polychain has accused former employee Niraj Pant of making a secret deal with portfolio company Eclipse Labs that violated the fund’s policies.
According to three sources familiar with the matter and internal Eclipse documents reviewed by CoinDesk, former Eclipse Labs CEO Neel Somani quietly awarded Pant 5% of an upcoming Eclipse cryptocurrency token in September 2022, just days after Pant tapped Polychain to lead the company’s $6 million pre-seed funding round.
The allocation was eventually reduced to 1.33%, or $13.3 million at the token’s most recent fully diluted valuation in a private investment round. (The company’s latest funding round valued the token at a fully diluted value (FDV) of $1 billion, according to a source close to Eclipse Labs.)
Polychain was founded by Olaf Carlson-Wee, the first employee of cryptocurrency exchange Coinbase, and is one of the largest and most well-known venture capital firms in the cryptocurrency space, with over $11 billion in assets under management. Pant served as a general partner from 2017 to 2023, tasked with directing the firm’s venture capital toward promising cryptocurrency startups.
Pant has since become a prominent figure in the cryptocurrency industry, and is currently the co-founder of blockchain AI startup Ritual, another investment in Polychain’s portfolio.
Eclipse Labs creates a blockchain that combines technology from popular Solana and Ethereum networks. After leading Eclipse’s pre-seed funding round in August 2022, Polychain continued to participate in its $50M Series A Funding Round in March 2024.
Pant led the pre-seed deal, and a CoinDesk investigation found that he was allocated roughly as many Eclipse cryptocurrency tokens as Polychain itself at around the same time. The deal was not disclosed to most of Eclipse’s executives, advisors or major investors, according to CoinDesk’s sources.
Pant insists the deal 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 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 changed.
Polychain told CoinDesk it was unaware that Pant had a financial stake in Eclipse until he left the firm in 2023. The fund said it would have to disclose the deal according to its policieswhich are intended to protect the company and its investors from conflicts of interest.
“Polychain was not aware of the financial relationship between Eclipse and Niraj Pant until after his departure from the company,” a Polychain spokesperson said in an email to CoinDesk. “Polychain has robust policies and procedures in place regarding employees in advisory roles. After Mr. Pant’s departure from Polychain, the company became aware that he had violated its policies and investigated the matter.”
Polychain’s statement to CoinDesk offers a rare glimpse into the sausage-making process of the cozy world of crypto VC firms and the projects they fund. Venture capital firms rarely publicly discuss personnel matters or deal structures, and Polychain did not publicly disclose Pant’s policy violation until CoinDesk contacted for this story.
The revelation could deepen the controversial narrative surrounding Somani, who he stepped aside as CEO of Eclipse in May, amid sexual harassment allegations. Somani has denied the allegations and declined to comment for this story.
Two sources close to Eclipse who spoke to CoinDesk on condition of anonymity say that Somani had promised Pant his 5% advisory stake in Eclipse tokens before the pre-seed deal has even been closed.
According to documents reviewed by CoinDesk, Pant’s stake was larger than that of any Eclipse investor except Polychain, which was also allocated 5% of Eclipse’s token. Pant’s stake exceeded allocations to other advisors, investors and all Eclipse employees except current and former CEOs.
According to two people familiar with the matter, Somani told his inner circle that the generous token grant was intended to incentivize Pant to secure Polychain’s money and the veteran VC’s coveted backing.
According to Polychain officials, the deal was not disclosed to the venture capital firm or its limited partners at the time.
The episode also offers a look at the transactions that have become typical of the cryptocurrency industry’s unique fundraising norms, with digital tokens often granted alongside or instead of any equity. Blockchain apps, digital assets, and decentralized ledgers are often touted as a more transparent alternative to traditional finance, but the ownership structures of many leading projects and cryptocurrencies remain opaque.
Eclipse Labs is creating a layer-2 blockchain that offers users a faster, cheaper way to transact on the Ethereum network. The network’s main attraction is that it borrows elements of the popular Solana blockchain to power key parts of its technical design, a detail that has helped it gain traction in two of the largest blockchain communities.
In the case of Eclipse’s fundraising, token allocations were crucial because few investors received equity in the project. Most were simply promised a share of the Eclipse token, a cryptocurrency that doesn’t yet exist and that Eclipse hasn’t even publicly announced.
This setup is not unusual. Crypto investors often offer cash for tokens rather than traditional stocks, and companies rarely disclose these arrangements publicly, for fear of providing ammunition to financial regulators in their fight to classify cryptocurrencies as investment securities.
“Eclipse Labs does not publicly disclose investor ownership percentages,” an Eclipse Labs spokesperson told CoinDesk.
According to internal token allocation tables reviewed by CoinDesk, Eclipse employees, investors and advisors have already been pledged nearly 50% of the supply of a future Eclipse token.
Pant insists his consulting deal with Eclipse was transparent. He shared legal documents with CoinDesk showing he is set to receive a 1.33% stake in Eclipse’s token.
That amount, revised from a previous total that Pant had not disclosed, is less than the 5 percent that Pant was initially promised, documents and people familiar with the matter reveal, but it is still more than that of every other Eclipse adviser and nearly all of its investors and employees.
The consulting 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 tokens in exchange for “periodic synchronization meetings via teleconference” as requested by Eclipse. The agreement itself says nothing about Polychain or its pre-seed investment in Eclipse.
The version of the agreement provided to CoinDesk by Pant says it is an “amendment” to a previous advisory agreement dated Sept. 8, 2022, a few weeks after Eclipse closed its pre-seed round and while he was still a general partner at Polychain.
Pant refused to share the original agreement.
Regardless of whether Pant’s consulting was finalized prior to the pre-seed deal, if his initial consulting with Eclipse began while he was still at Polychain (as his filings attest), then he may still have been required to disclose it under the company’s ethics policies, which the company outlined in a lengthy filing with the U.S. Securities and Exchange Commission.
In a official policy repository with the SEC, Polychain writes: “In order to monitor for any conflicts of interest, Polychain employees are required to pre-authorize certain transactions contemplated in their personal accounts that may have 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 noteworthy because Pant is not only a former Polychain employee, but also the founder and CEO of Ritual, one of Polychain’s hottest portfolio companies.
After leaving Polychain and founding Ritual last year, Pant has quickly become a fixture of the blockchain industry. speaker circuitconsidered a thought leader on the intersection of cryptocurrency and AI. Ritual, which aims to decentralize the training of AI models, falls into a category of blockchain-meets-AI projects that have evolved into a venture in their own right. Last November, 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 had learned of the violation before investing in Ritual.
Despite the alleged policy violation, Polychain’s investment in Eclipse could still pay off. According to a source close to the fund, its stake in Eclipse has increased in value 10-fold since the company first invested in 2022.