Unveiling the "dark secrets" of project financing: Former Polychain partner Niraj Pant secretly received "kickbacks" from Eclipse Labs

Original Title: “Top Crypto VC Says Ex-General Partner Made Undisclosed Side Deal With Portfolio Company”

Author: Sam Kessler

Translation: DeThings

Note: A former general partner of a top crypto venture capital firm, Niraj Pant, reached a secret agreement with portfolio company Eclipse Labs, but the timeline is unclear, raising some controversy. This incident has drawn attention to potential conflicts of interest and ethical standards in the venture capital industry, highlighting the complex relationship between investors and startups.

• Polychain stated that its former general partner Niraj Pant made a secret deal with portfolio company Eclipse Labs, which violated the fund's policies.

• A CoinDesk investigation revealed that former CEO of Eclipse Labs, Neel Somani, promised Pant a holding of $13.3 million worth of Eclipse tokens.

• According to sources from Eclipse, Somani promised these tokens as an incentive for Pant to secure funding from Polychain.

• Polychain indicated that Pant did not disclose this deal to the fund. Later, it invested in Pant's AI startup, Ritual.

• Pant confirmed that Eclipse Labs allocated him "advisor" tokens but stated that he only reached an agreement with the company after Polychain's investment.

• This situation provides a glimpse into the typical dark dealings of the crypto industry's financing landscape, where venture capital firms invest in projects and investments in exchange for tokens instead of traditional equity.

Crypto venture capital giant Polychain accused former employee Niraj Pant of making a behind-the-scenes deal with portfolio company Eclipse Labs that violated the fund's policies.

According to three insiders and internal documents from Eclipse reviewed by CoinDesk, former CEO Neel Somani quietly allocated 5% of the upcoming Eclipse crypto tokens to Pant in September 2022—just days after Pant directed Polychain to lead a $6 million seed pre-financing for the company.

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

Polychain, founded by Olaf Carlson-Wee (the first employee) of cryptocurrency exchange Coinbase, is one of the largest and most well-known cryptocurrency venture capital firms, managing over $11 billion in assets. Pant served as a general partner at the firm from 2017 to 2023, responsible for directing the company's venture investments into promising crypto startups.

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

Eclipse Labs built a blockchain that combines technology from popular Solana and Ethereum networks. After leading Eclipse's seed pre-round financing in August 2022, Polychain participated in a $50 million Series A round in March 2024.

Pant was the first to engage in the seed pre-transaction, and a CoinDesk investigation revealed that around the same time, the number of Eclipse crypto tokens he was allocated was equal to that of Polychain itself. According to sources at CoinDesk, this deal was not disclosed to most of Eclipse's executives, advisors, or major investors.

Pant insists that this arrangement was entirely above board, as it was not finalized until September 2022, a month after Polychain had already invested in Eclipse. He shared legal documents with CoinDesk showing that his "consulting" allocation of Eclipse tokens was modified to 1.33% in 2024, but declined to comment on the size of his initial stake or why it was changed.

Polychain told CoinDesk that it only became aware of Pant's financial stake in Eclipse after he left the company in 2023. The fund stated that he should have disclosed the deal according to its policies, which are designed to protect the firm and its investors from conflicts of interest.

"Polychain only realized the financial relationship between Eclipse and Niraj Pant after he left the company," a Polychain spokesperson said in an email to CoinDesk. "Polychain has sound policies and procedures for employees serving in advisory roles. After Mr. Pant left Polychain, the firm realized he had violated its policies and investigated the matter."

Polychain's statement to CoinDesk provides a rare insight into the sausage-making process of the comfortable world of crypto venture capital firms and their funded projects. Venture capital firms rarely discuss personnel issues or deal structures publicly, and Polychain did not disclose Pant's policy violation until CoinDesk reported on the matter.

Unclear Timeline

This revelation may deepen the controversial narrative surrounding Somani, who resigned as CEO of Eclipse in May amid allegations of misconduct. Somani has denied the allegations and declined to comment on the matter.

Two anonymous sources close to Eclipse claimed that Somani promised Pant a 5% consulting stake in the Eclipse tokens before the seed pre-transaction was completed.

According to documents reviewed by CoinDesk, Pant's stake was higher than any Eclipse investor other than Polychain, which also held 5% of the Eclipse tokens. Pant's stake exceeded the allocations given to other advisors, investors, and all Eclipse employees except the former CEO.

According to two insiders, Somani told his inner circle that the generous token grant was intended to incentivize Pant to secure cash from Polychain and the recognition that this seasoned venture capitalist coveted.

Polychain officials stated that this arrangement was not disclosed to the venture capital firm or its limited partners at the time.

Tokens, Not Equity

This incident also provides a glimpse into the unique fundraising norms of the cryptocurrency industry, where digital tokens are often granted alongside or in place of any equity. Blockchain applications, digital assets, and decentralized ledgers are often touted as more transparent alternatives to traditional finance, yet the ownership structures of many leading projects and cryptocurrencies remain opaque.

Eclipse Labs built a Layer 2 blockchain that offers users a faster and cheaper way to transact on the Ethereum network. The main appeal of the network lies in its borrowing of elements from the popular Solana blockchain to power key elements of its technology design—this detail helped it gain traction in two of the largest blockchain communities.

In Eclipse's financing, token allocation is crucial, as few investors receive equity in the project. Most are merely promised a share of the Eclipse tokens—a cryptocurrency that does not yet exist, and which Eclipse has not even publicly announced.

This setup is not atypical. Cryptocurrency investors often provide cash in exchange for tokens instead of traditional equity, and companies rarely disclose these arrangements to the public to avoid giving ammunition to financial regulators in their battles over classifying cryptocurrencies as investment securities.

"Eclipse Labs did not disclose the ownership percentages of investors to the public," a spokesperson for Eclipse Labs told CoinDesk.

According to an internal token allocation sheet reviewed by CoinDesk, Eclipse's employees, investors, and advisors have received nearly 50% of the future supply of Eclipse tokens.

Pant insists that his consulting agreement with Eclipse is above board. He shared legal documents with CoinDesk showing that he would receive a 1.33% stake in Eclipse tokens.

Excerpt from the revised consulting agreement provided by Niraj Pant

This amount—revised down from the earlier total that Pant did not disclose—is lower than the 5% initially promised, as revealed by documents and insiders, but still higher than all other Eclipse advisors and nearly all investors and employees.

The version of the agreement Pant provided to CoinDesk is dated April 29, 2024—after he left Polychain—and is signed by two parties: Neel Somani, representing Eclipse Labs; and Niraj Pant, representing "The Psychological Operations Co."

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

According to the agreement, Psychological Operations Co. will receive a grant of Eclipse tokens in exchange for "regular teleconference sync meetings" as requested by Eclipse. The agreement itself does not mention Polychain or its seed pre-investment in Eclipse.

The version of the agreement Pant provided to CoinDesk indicates that it is a "revision" of an earlier consulting agreement dated September 8, 2022—just weeks after the conclusion of Eclipse's seed pre-round financing, during which he was still a general partner at Polychain.

Pant declined to share the original agreement.

Polychain's Policies

Regardless of whether Pant's advisory position was completed before the seed pre-transaction, if his initial advisory role at Eclipse began while he was still working at Polychain—as his own documents suggest—then he may still have been required to disclose this under the company's ethical policies, which are described in lengthy disclosures to the U.S. Securities and Exchange Commission (SEC).

Polychain CEO Olaf Carlson-Wee (Danny Nelson / CoinDesk)

In official policy documents submitted to the SEC, Polychain wrote: "To monitor any conflicts of interest, Polychain employees must pre-clear certain anticipated transactions in their personal accounts that may present impropriety, and must disclose all holdings in personal accounts initially and annually, as well as disclose all transactions quarterly."

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

After leaving Polychain last year and founding Ritual, Pant quickly became a prominent speaker in the blockchain industry, regarded as a thought leader at the intersection of crypto and AI. Ritual aims to decentralize the execution of AI models and is one of a class of projects where blockchain meets AI, which has itself become a darling of venture capital. Last November, it raised $25 million from Polychain and other firms.

Polychain declined to comment on whether its relationship with Ritual has changed due to Pant's alleged policy violations or whether it was aware of the breach before investing in Ritual.

Despite the alleged policy violations, Polychain's investment in Eclipse may still yield returns. According to a source close to the fund, its stake in Eclipse has grown tenfold since the company first invested in 2022.