Top Crypto VC Says Ex-General Partner Made Undisclosed Side Deal With Portfolio Company

Based on information from three reliable sources and internal Eclipse documents examined by CoinDesk, Neel Somani, the previous CEO of Eclipse Labs, secretly assigned 5% of an upcoming Eclipse cryptocurrency token to Pant in September 2022. This allocation occurred soon after Pant instructed Polychain Capital to manage Eclipse’s $6 million pre-seed investment round.

As an analyst, I would rephrase it as follows: The allocation was finally set at 1.33%, equating to a value of $13.3 million based on the latest fully diluted valuation of the token during Eclipse Labs’ private investment round. According to my source, this funding round determined the token to have an FDV of one billion dollars.

Polychain was established by Olaf Carlson-Wee, an early employee of renowned cryptocurrency exchange Coinbase, and has become one of the most prominent crypto investment firms, managing over $11 billion in assets. During the period from 2017 to 2023, Pant served as a general partner at Polychain, responsible for directing the firm’s venture capital into budding crypto companies.

Since then, Pant has made a significant mark in the cryptocurrency sector and now co-founded Ritual, a blockchain AI company that is part of Polychain’s investment portfolio.

Expert: At Eclipse Labs, we’re developing a blockchain that combines the advanced technologies of both Solana and Ethereum networks. Following our successful pre-seed funding round in August 2022, Polychain Capital became an investor, and later joined us for our $50 million Series A financing in March 2024.

As a researcher delving into the early stages of Eclipse’s funding, I uncovered that Pant played a pivotal role in securing our pre-seed investment. An intriguing finding by CoinDesk emerged around this period: Pant received approximately the same number of Eclipse crypto tokens as Polychain Capital itself. Notably, according to my sources within Eclipse, most executives, advisors, and significant investors were not made privy to this arrangement.

According to Pant, the deal he was involved in regarding Eclipse tokens was valid since it wasn’t concluded until September 2022 – a month after Polychain had made their investment. He provided legal documents to CoinDesk as evidence, which revealed his “advisory” share of Eclipse tokens was adjusted to 1.33% in 2024. However, he remained silent on the specifics of his initial stake or the reason behind the modification.

In 2023, after Pant had already departed from Polychain, we became aware that he held a financial stake in Eclipse. According to our policies designed to mitigate potential conflicts of interest and safeguard both the firm and its investors, he was obligated to disclose this deal to us prior to his departure.

“Polychain didn’t know about Niraj Pant’s financial connection to Eclipse before his exit from our company. Our organization has strict guidelines for employees in advisory positions. Once we learned of Mr. Pant’s infraction post-departure, we launched an investigation into the matter.”

As a researcher delving into the intricacies of the crypto venture capital (VC) scene, I find Polychain’s revelation to CoinDesk provides an exceptional peek behind the curtains of this close-knit community and the startups they back. In the secretive realm of VC firms, personnel matters and deal specifics are seldom disclosed in public, with Polychain being no exception. They kept quiet about partner Pant’s policy infringement until I brought it up for this article.

A murky timeline

As a researcher delving into the intricacies of corporate scandals, I uncovered a surprising development: the former CEO of Eclipse, Somani, faced renewed controversy in May due to accusations of sexual misconduct. He responded by denying these allegations and chose not to comment for this particular report.

As a crypto investor, I’ve heard from reliable sources, who preferred to remain anonymous and spoke with CoinDesk, that prior to the official closing of the pre-seed deal for Eclipse, Somani had already promised Pant a 5% advisory stake in the project’s tokens.

As a crypto investor following the latest news from CoinDesk, I came across an interesting piece of information regarding the distribution of stakes in Eclipse. Based on the documents they reviewed, it appears that my stake in Eclipse was larger than any other investor’s, with the exception of Polychain, which held a 5% allocation. My investment surpassed the allocations to all advisors, investors, and every employee, except for the current and former CEOs.

Two sources close to the situation revealed that Somani communicated to his confidants that the substantial gift was intended to motivate Pant to obtain Polychain’s financial backing and secure the esteemed VC’s approval.

Based on Polychain’s representatives’ statements, the details of the agreement were kept hidden from the venture capital firm and its investors back then.

Tokens, not equity

This episode offers a peek into the distinctive fundraising practices in the crypto industry, where digital tokens are frequently given along with or instead of equity. Blockchain applications, digital assets, and decentralized journals are touted as more transparent options than conventional finance, but the ownership frameworks of several prominent projects and cryptocurrencies remain shrouded in mystery.

I analyze Eclipse Labs as a blockchain project that constructs a layer-2 solution on Ethereum, providing users with quicker and more affordable transactions. The allure of this network stems from its adoption of Solana’s essential features to strengthen its technical foundation – a move that has generated significant interest within the Ethereum and Solana blockchain communities.

During Eclipse’s crowdfunding campaign, the distribution of tokens was significant as most investors weren’t granted equity in the project. Instead, they were merely given a future promise for a share of Eclipse’s yet-to-be-created token – an unannounced cryptocurrency.

The practice of crypto investors exchanging cash for tokens instead of traditional stock is common. Companies often keep such deals hidden from the public to avoid providing regulatory bodies with potential evidence they could use to label cryptocurrencies as investment securities.

A representative from Eclipse Labs shared with CoinDesk that they do not make their investor ownership proportions publicly available.

Based on the internal distribution records examined by CoinDesk, approximately half of the upcoming Eclipse tokens are set aside for allocation to the company’s staff, investors, and advisors.

According to Pant, his consultancy contract with Eclipse was transparent and valid. To support this claim, he provided CoinDesk with authentic legal records indicating that he will own a 1.33% share in Eclipse’s token.

The revised sum that Pant revealed, which is less than his earlier undisclosed total, falls short of the 5% promise he initially received according to documents and sources familiar with the situation. However, it exceeds the amounts received by most other Eclipse advisors and nearly all investors and employees.

As an analyst, I’ve come across an advisory agreement between Neel Somani, representing Eclipse Labs, and Niranjan (Niraj) Pant on behalf of “The Psychological Operations Co.”, which was dated April 29, 2024. Notably, this agreement was executed post-Pant’s departure from Polychain.

According to the arrangement, Psychological Operations Company will be given Eclipse’s tokens at regular intervals. In return, they will participate in scheduled conference calls as required by Eclipse. The contract itself is silent regarding Polychain or its early investment in Eclipse.

According to the document from Pant given to CoinDesk, this is described as a “modification” of an earlier consultancy agreement signed on September 8, 2022. This alteration came about during Eclipse’s pre-seed financing round closing in late October and while he was still serving as a general partner at Polychain.

Pant declined to share that original agreement.

Polychain’s policies

If Pant began advising Eclipse before finalizing his role as an advisor during the pre-seed funding stage, while he was still employed at Polychain, he might have been obligated to disclose this according to Eclipse’s ethical guidelines, as stated in their extensive SEC filing.

In their SEC filing, Polychain states that to avoid potential conflicts of interest, their employees are obligated to obtain approval beforehand for certain personal transactions that might raise eyebrows, and must report the contents of all their personal accounts along with every transaction at the start and end of each year, as well as every three months.

As a crypto investor, I find the current scenario quite intriguing. Not only did Pant previously work for Polychain Capital, but he is also the mastermind behind Ritual, one of their most buzzing investments.

Upon leaving Polychain and establishing Ritual last year, I swiftly gained recognition as a go-to voice in the blockchain sector regarding the intriguing intersection between cryptocurrencies and artificial intelligence. Ritual’s mission is to democratize AI model training through the use of blockchain technology, making it one of the promising projects bridging these two fields. In November 2021, we successfully secured $25 million in funding, with Polychain among our esteemed investors.

Polychain chose not to disclose if their partnership with Ritual has shifted due to Pant’s reported policy violation, or if they became aware of the infraction prior to investing in Ritual.

As a researcher examining the situation between Polychain and Eclipse, I’ve discovered that despite allegations of policy violations, Polychain’s investment in Eclipse could potentially yield significant returns. In fact, according to my information from a reliable source within the fund, their stake in Eclipse has seen a remarkable increase in value by a factor of ten since their initial investment in 2022.