In April 2024, Du Jun announced the suspension of the ABCDE fund while launching a new incubation brand, Vernal. Primary investment has hit the pause button, but incubation business is accelerating; this marks not only a personal shift in his path but also, to some extent, signals a change in the Web3 investment paradigm.
In the past few years, the strategy of crypto VCs has been clear: invest in projects, wait for them to launch, and cash out. But now, with exit paths blocked and valuation systems collapsing, many institutions are beginning to realize that continuing to act as 'financial investors' might mean not even being able to watch the whole show. As a result, a group of capital has started to change their approach—no longer betting on project growth, but instead getting directly involved, 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; rather, it is a brand new participatory role—both a shareholder and a collaborator; investing capital while also bearing operational pressure; even the legal responsibilities are much more blurred than in the past.
In this article, Portal Labs will break down the key logic and compliance blind spots behind incubation investment.
For high-net-worth investors, on this path of deeply bound resources and high legal risks, how to ensure they do not fall short or overstep?
The logic and gameplay of incubation investment.
In the early years, as soon as a financing announcement was made, Web3 projects could take off instantly, communities would explode, and exchanges would queue. But now, Web3 is no longer in an era where a simple 'XXX has completed financing' suffices.
In this narrative-scarce, traffic-dispersed cycle, capital is no longer an all-powerful driving force. More and more investors are beginning to realize that if they want projects to truly take off, simply throwing money is not enough; they must get directly involved.
Thus, 'investing in projects' has begun to turn into 'doing projects.'
This is the essence of incubation investment. You are not just buying an early ticket; you are using resources, capabilities, and networks to exchange for a higher proportion of early shares, helping the project move from 0 to 1 through genuine collaboration.
In practice, the approach to incubation investment typically consists of a set of 'combination punches':
Ecological empowerment: integrating traffic entrances, wallet integration, and community user introduction to ensure that the project has 'users and viewers' from the start.
Technical support: including underlying architecture optimization, security audits, product testing—these are not 'engineering tasks' that can be solved with money alone.
Market promotion: doing content marketing, community fission, joint activities, etc., to pull exposure and improve conversion across the entire chain;
Compliance collaboration: pre-investment due diligence, license applications, and legal consultants must be arranged in advance; don't wait until something goes wrong to find a lawyer.
The most typical case is Binance Labs.
Polygon and Injective were able to rise to the forefront not just because of their funding amounts, but because of the substantial support provided by the Binance ecosystem: wallet integration, exchange listings, brand endorsement, legal consulting... In other words, it was a complete process of 'getting them to the table.'
A similar path is now being replicated by Vernal (a new incubation brand set up by Du Jun): investing in projects while bringing them into the field, turning 'competing alongside' into 'co-building.'
It should be noted that even some large funds that seem to still be making primary investments, like a16z, have quietly integrated incubation into their systems. They provide project parties with recruitment support, government communication channels, compliance framework design, and have even launched the Crypto Startup School to systematically train teams on how to start running from 0.
This is no longer the past logic of 'I give money, you survive on your own.'
In short, incubation investment is a heavily collaborative game. It does not treat projects as a 'financial target' but as a 'long-term partner.'
If you just want to invest and leave, you might not be able to navigate this. But if you have resources, a team, and the ability to collaborate systematically—then you can indeed use this path to achieve returns far above the market average.
The characteristics and legal challenges of incubation investment.
But that said, incubation investment is not a panacea.
It does indeed bring stronger project collaboration and a more complete ecological collaboration chain—but it also pulls investors into a more complex legal context. Especially in the current global regulatory tightening backdrop, deeper participation entails greater responsibility and a higher likelihood of stepping on mines.
If VC is 'investing and waiting,' then incubation is more like 'getting on the field to compete.' And this competition is not always fair or safe.
Portal Labs suggests looking at the 'high risk + high participation' characteristics of this path from three perspectives:
1. High participation, blurred identity boundaries.
The identity of traditional VCs is relatively clear: funders, observers, not involved in project operations. But incubation is different; you may find yourself in product meetings, participating in token economic model design, or even personally seeking wallets, negotiating launches, and building communities.
It sounds like 'helping a bit more,' but the law does not see it that way.
Are you an investor? A consultant? Or a 'de facto controller'?
If there is no clear demarcation in contracts and structures, if regulatory agencies or project parties seek accountability, it is likely that you will be deemed to constitute 'related party transactions', 'de facto control', or 'shadow directors', and bear legal responsibilities.
Especially when projects involve fraud, illegal financing, or user asset losses, you may not be a bystander but rather the 'second defendant.'
2. Diverse revenue paths, heavier compliance responsibilities.
One of the benefits of incubation is that there are more diverse exit options.
You may participate in project revenue sharing, design a token buyback mechanism, bind ecological profits, or even collect product revenue rights. It sounds like an upgrade in capital efficiency, but it also means you need to face more diverse compliance challenges. For example:
Does it constitute an unlicensed securities issuance?
Does the revenue agreement violate the local dividend regulations?
Is there a need for tax declaration or filing?
Does token buyback involve market price manipulation?
These issues, if handled with a compliant structure, can be controlled; but if you are participating as an individual, it equates to 'running naked,' with all risks borne personally.
3. Tokens remain a 'high-risk zone.'
Whether you are incubating RWA, DePIN, ZK, or AI narratives, one question you cannot avoid is: Should you issue tokens?
Once tokens are issued, the issue of how different countries classify token attributes cannot be avoided.
In the United States, the SEC's attitude is almost a blanket ban, and functional tokens can easily be classified as securities.
In Hong Kong, the SFC requires high-volatility tokens to only be offered to professional investors, and many project launch processes are stalled at the admission mechanism.
In Singapore, if a token involves stable earnings or predictable returns, it must be filed with MAS in advance; otherwise, it may be regarded as an illegal issuance.
What’s more troublesome is that many incubation projects adopt a 'global collaboration + multiple local deployments' model. For example: you set up a team in Singapore → issue tokens in the Cayman Islands → finally aim to launch on an exchange in Korea or Japan. It sounds like clear division of labor and reasonable logic, but under regulatory scrutiny, this operation may have crossed multiple red lines.
The compliance paths and structures of incubation investment.
Faced with the complex situation of 'deep participation + cross-border operations + multi-role revenues', if you want to enter incubation investment safely, the core ability is not project investment but building compliant structures.
Specifically, Portal Labs recommends starting from three key dimensions:
1. Ensure 'identity isolation'.
Whether it's providing money or resources, Portal Labs does not recommend investors directly binding projects as 'natural persons.' The reason is simple: if the project goes wrong, individuals bear the consequences, exposing investors to high legal risks.
A more mature approach is to establish a dedicated investment structure overseas, with common paths including:
Cayman SPV: used to hold token shares and distribute profits; flexible, practical, and cost-controllable, it is the standard configuration for current crypto funds.
BVI holding company: suitable for equity-type investments, combined with trust or family office structures for tax optimization.
Singapore exempt fund structure: suitable for family-type capital for portfolio management, also beneficial for subsequent tax filings and bank account openings.
These structures are not just tools for tax and settlement; they are the first firewall for isolating identity risks and managing compliance responsibilities.
2. Token design must undergo 'de-securitization' in advance.
Many countries do not oppose you issuing tokens; what they oppose is issuing a token that looks like a 'security.'
If you are in a restricted zone, such as mainland China, then don't act yet. But if you choose a region with a relatively loose policy space, then from the very beginning of the design, you should stay away from high-pressure regulatory lines.
You can focus on the following optimization points:
Use SAFT to first bind rights and delay issuance, avoiding immediate allegations of 'securities issuance';
Do not promise returns, even 'annualized 3%', as it may be classified by regulators as an investment contract;
Highlight the 'use case' of tokens rather than their 'selling points,' such as using them to offset transaction fees, participate in governance, or exchange for services, rather than simply holding them for appreciation;
Bind them to ecological behaviors, such as lock-up + task incentives, unlocking usage scenarios, rather than linear release. Such 'behavior-binding models' are more likely to be accepted by regulators as functional tokens.
In short, issuing tokens is fine, but don't issue them as if you're selling equity.
3. Match the 'landing jurisdiction' according to market objectives.
The regulatory environment varies significantly across different regions. Choosing the wrong launch location may not just mean earning less, but it could be impossible to launch at all.
Therefore, many people examine who has more money and which exchanges are easier to negotiate with before issuing tokens, but that’s actually incorrect. The first step in structural design should be to consider 'where you hope this project will ultimately land.'
Planning to target U.S. users? Then don't touch Reg A; the process is lengthy and expensive. Instead, consider directly looking at Reg D (for qualified investors) or Reg S (for offshore issuance) for exemptions.
Preparing to start in Hong Kong or Singapore? Then get in touch with local VASP regulations early, or enter the regulatory sandbox for small-scale testing.
Uncertain about market belonging in the early stages? Then consider a flexible combination structure like 'Cayman + BVI' so that no matter where you apply for a license later, you can flexibly switch paths.
These structures may not necessarily be complex, but you need to set them up before the project is launched and the token model is defined. Once market feedback comes, going back to fill in compliance will likely be too late.
Who is suitable for incubation investment?
In the end, incubation investment is not a 'betting game,' but a 'long-term collaboration.'
It requires not just funding, but also a comprehensive investment of time, resources, and strategic synergy. You not only need financial support but also the ability to coordinate project implementation and integrate resources across domains.
However, if you prefer a 'light participation, high liquidity' asset allocation method, or wish to 'invest and walk away, taking on the risk yourself,' then incubation investment may not be your ideal field.
Of course, if you are a participant who believes in long-termism and is willing to root yourself in the industry ecosystem, truly integrating your experience, resources, and vision into a project's growth path, then the potential multiple returns from incubation investment are not the only benefit; it also offers an opportunity to co-build with the future.
