In April 2024, Du Jun announced the suspension of the ABCDE fund and launched a new incubation brand, Vernal. The primary investment was put on hold, but the incubation business was accelerated. This was not only a shift in his personal path, but also, to some extent, foreshadowed a change in the Web3 investment paradigm.
In the past few years, the strategy of crypto VCs was clear: invest in projects, wait for launch, and exit to cash out. But now, the exit path is blocked and the valuation system has collapsed. Many institutions have begun to realize that if they continue to be "financial investors", they may not even be able to watch the whole show. Therefore, a group of capital began to change their posture - no longer betting on project growth, but personally participating in the project, directly packaging resources, capabilities, and networks to push projects from 0 to 1.
This is the logical starting point of "incubation investment". It is not an extension of traditional VC, but a brand-new role of participation - both a shareholder and a collaborator; both investing capital and bearing operational pressure; even in terms of legal responsibility, the boundaries are far more blurred than in the past.
In this article, Portal Labs will help you analyze the key logic and compliance blind spots behind incubation investments.
For high net worth investors, how can they avoid being absent or crossing the line on this road that is deeply resource-bound and has high legal risks?
The logic and gameplay of incubation investment
In the early years, as long as a piece of financing news was released, the Web3 project would take off instantly, the community would explode, and exchanges would line up. But now, Web3 is no longer the era where "XXX has completed financing".
In this period of scarce narratives and dispersed traffic, capital is no longer an omnipotent driving force. More and more investors are beginning to realize that if they want to make a project really run, it is not enough to just throw money at it, they have to get involved themselves.
As a result, “investing in projects” began to become “doing projects”.
This is the essence of incubation investment. You are not just buying an early ticket, but exchanging resources, capabilities, and networks for a higher proportion of early shares, and using real collaboration to help the project go from 0 to 1.
In practice, incubation investment usually involves a combination of:
Ecosystem empowerment: Integrate traffic entry, wallet integration, and community user import to ensure that the project is "used and viewed" at the initial stage of launch;
Technical support: including underlying architecture optimization, security audits, and product testing. These are “engineering tasks” that cannot be accomplished with money.
Market promotion: content marketing, community fission, joint activities, etc., to increase exposure and conversion throughout the entire chain;
Compliance collaboration: Pre-investment due diligence, license application, and legal consulting should all be arranged in advance. Don’t wait until something goes wrong before hiring a lawyer.
The most typical case is Binance Labs.
The reason why Polygon and Injective were able to rise to the forefront was not just the amount of financing, but the substantial support provided by the Binance ecosystem: wallet docking, exchange listing, brand endorsement, legal consultation... In other words, it was the complete process of "helping them to the table."
A similar path is now being replicated by Vernal (Du Jun’s new incubation brand): investing in projects while bringing them into the field, turning “running along” into “co-construction”.
It is important to note that even some large funds that seem to be still doing primary investment, such as a16z, have quietly integrated incubation into the system. They provide recruitment support, government communication channels, compliance framework design, and even opened a Crypto Startup School to systematically train teams on how to start from scratch.
This is no longer the logic of the past: "I give you money and you fend for yourself."
In short, incubation investment is a game of heavy collaboration. It does not treat the project as a "financial target" but as a "long-term partner".
If you just want to invest and leave, it may not work. But if you have resources, a team, and the ability to collaborate systematically, you can indeed use this path to obtain returns far higher than the market average.
Characteristics and legal challenges of incubation investment
But then again, incubation investing is not a panacea.
It can indeed bring stronger project synergy and a more complete ecological collaboration chain - but it also pulls investors into a more complex legal context. Especially in the current context of accelerated tightening of global regulation, the deeper the participation, the greater the responsibility, and the possibility of stepping on landmines also increases.
If VC is "investing and waiting", then incubation is more like "playing the game yourself". And this game is not always fair or safe.
Portal Labs recommends looking at the “high risk + high involvement” characteristics of this path from three perspectives:
1. High participation and blurred identity boundaries
The identity of traditional VCs is relatively clear: investors, observers, and non-interference in project operations. But incubation is different. You may appear in product meetings, participate in the design of token economic models, and even find wallets, discuss online launches, and build communities in person.
It sounds like "helping a little more", but the law does not see it that way.
Are you an investor? An advisor? Or a “de facto controller”?
If there is no clear demarcation in the contract and structure, once the regulatory agency or project party holds you accountable, they may very likely determine that you have engaged in "related-party transactions", "actual control", or "shadow directorship", and hold you jointly liable for legal liability.
Especially when the project involves fraud, illegal financing or loss of user assets, you may not be a bystander but the "second defendant".
2. Diverse revenue paths and heavier compliance responsibilities
One of the benefits of incubation is that there are more diverse exit methods.
You may participate in project revenue sharing, design token buyback mechanisms, bind ecosystem profits, and even collect product revenue rights. It sounds like an upgrade in capital efficiency, but it also means that you need to deal with more diverse compliance challenges. For example:
Does it constitute an unlicensed securities issuance?
Does the income agreement violate local dividend regulations?
Is tax declaration or filing required?
Does Token Buyback involve manipulating market prices?
If you use a compliance framework to handle these issues, the risks can be controlled; but if you are an individual and directly involved, it is equivalent to "running naked", and you have to bear all the risks yourself.
3. Tokens are still a “high-risk area”
No matter what you are incubating, such as RWA, DePIN, ZK or AI narrative, the final question that cannot be avoided is: should you issue a coin ?
Once a coin is issued, there is no way around the issue of how each country identifies the attributes of the token.
In the United States, the SEC’s attitude is almost one-size-fits-all, and functional tokens can easily be classified as securities;
In Hong Kong, the SFC requires that high-volatility tokens are only available to professional investors, and the launch process of many projects is stuck in the access mechanism;
In Singapore, if a token involves stable income or predictable returns, it must be registered with MAS in advance, otherwise it may be considered an illegal issuance.
What’s more troublesome is that many incubation projects adopt the “global collaboration + multi-location deployment” model. For example: you set up a team in Singapore → issue tokens in Cayman → finally want to list on exchanges in South Korea or Japan. It sounds like a clear division of labor and reasonable logic, but in the eyes of regulators, this set of operations may have crossed more than one red line.
Compliance path and structure for incubation investment
Faced with the complex situation of "deep involvement + cross-border operations + multi-role benefits", if you want to safely enter incubation investment, the most core ability is not to invest in projects, but to build a compliant structure.
Specifically, Portal Labs recommends starting from three key dimensions:
1. Do a good job of "identity isolation"
Whether it is providing money or resources, Portal Labs does not recommend that investors directly bind to the project "as a natural person". The reason is simple: if something goes wrong with the project, the individual will be responsible for the loss, which will expose investors to highly uncertain legal risks.
A more mature approach is to set up a dedicated investment structure overseas. Common paths include:
Cayman SPV: used to hold token shares and distribute income. It is flexible, easy to use, and cost-controlled. It is the standard configuration of current crypto funds.
BVI holding company: suitable for equity investment, combined with trust or family office structure for tax optimization;
Singapore’s exempted fund structure: suitable for family-type capital portfolio management, and also conducive to subsequent compliance operations such as tax declaration and bank account opening.
These structures are not only tax and settlement tools, but also the first firewall to isolate identity risks and manage compliance responsibilities .
2. Token design needs to be “de-securitized” in advance
Many countries do not object to you issuing tokens, but they object to you issuing a token that looks like a "security".
If you are in a restricted area, such as mainland China, then don't move. But if you choose a region with relatively loose policy space, you must stay away from the regulatory high-voltage line from the beginning of the design.
You can focus on the following optimization points:
Use SAFT to bind rights first and postpone issuance, thus avoiding questions about immediate “securities issuance”;
If there is no promise of return, even if it is “3% annualized”, it may be classified as an investment contract by regulators;
Highlight the “usage” of tokens rather than their “selling points”, such as using them to offset handling fees, participate in governance, and exchange for services, rather than just waiting for them to rise in value;
Binding to ecological behaviors, such as lock-up + task incentives, unlocking by usage scenarios, rather than linear release. This type of "behavior binding model" is more likely to be accepted by regulators as a functional token.
In a word, it’s okay to issue coins, but don’t issue them like you’re selling equity.
3. Matching “landing jurisdiction” with market objectives
The regulatory environments in different regions vary greatly. If you choose the wrong starting point, it may not be a matter of making less money, but rather a matter of not being able to go online at all.
Therefore, when many people issue coins, they like to first look at who has more money and whose exchange is easier to negotiate with, but this is actually wrong. The first step in structural design should be to look at "where do you want this project to eventually land".
Planning to target US users? Then don’t go for Reg A, the process is long and expensive. It is recommended to go directly to Reg D (for qualified investors) or Reg S (for overseas issuance) for exemptions;
Are you planning to start in Hong Kong or Singapore? Then you can get in touch with the local VASP system as early as possible, or enter the regulatory sandbox for small-scale testing.
Not sure about the market at the beginning? Then you can consider a flexible combination structure like "Cayman + BVI". No matter where you apply for a license later, you can flexibly switch paths.
These structures are not necessarily complicated, but you need to build them before the project is launched and the token model is finalized. It will be too late to go back and make compliance adjustments after market feedback comes.
Who is incubation investment suitable for?
After all, incubation investment is not a "betting game" but a "long-term collaboration".
It requires not only money, but also a comprehensive investment of time, resources and strategic synergy. You need not only financial support, but also the ability to coordinate project implementation and integrate resources across domains.
But if you prefer an asset allocation method of "light participation and high liquidity", or hope to "invest and leave at your own risk", then incubation investment may not be your ideal field.
Of course, if you are a participant who believes in long-termism, is willing to take root in the industry ecosystem, and is willing to truly integrate your experience, resources and vision into the growth path of a project, then incubation investment will bring not only potential multiple returns, but also an opportunity to build together with the future.
