In the face of the complex situation of "deep participation + cross-border operations + multi-role benefits," the core capability for safely entering incubation-type investments is not project investment, but rather establishing compliant structures.

Written by: Portal Labs

In April 2024, DuJun announced the suspension of the ABCDE Fund while launching a new incubation brand, Vernal. While primary investments hit the pause button, incubation operations accelerated, marking not only a personal shift for him but also signaling a change in the Web3 investment paradigm to some extent.

In recent years, the strategy of crypto VCs has been clear: invest in projects, wait for them to launch, and exit for returns. However, now, with exit paths blocked and valuation systems collapsing, many institutions have begun to realize that continuing to act as "financial investors" might mean they won't even get to see the whole show. Consequently, 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-type investment." It is not an extension of traditional VC but a brand new participatory role — being both a shareholder and a collaborator; needing to invest capital while also bearing operational pressure; and even in terms of legal responsibility, the boundaries are much blurrier than in the past.

In this article, Portal Labs will help you dissect the key logic and compliance blind spots behind incubation-type investments.

For high-net-worth investors, how can one navigate this resource-deeply bound, legally high-risk path without falling short or crossing the line?

The Logic and Play of Incubation-Type Investment

In the early years, as soon as a financing announcement was made, Web3 projects could take off instantly, with communities buzzing and exchanges lining up. But now, Web3 is no longer in an era where a simple "XXX has completed financing" suffices.

In this period of scarce narratives and dispersed traffic, capital is no longer an all-powerful driving force. More and more investors are beginning to realize that if they want a project to truly take off, simply throwing money at it is not enough; they need to get personally involved.

Thus, "investing in projects" has begun to transform into "doing projects."

This is the essence of incubation-type 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 grow from 0 to 1 through tangible collaboration.

In practice, the approach to incubation-type investment typically involves a set of "combination punches":

• Ecological empowerment: Integrating traffic entry points, wallet integration, and community user onboarding to ensure the project has "users and viewers" right from the start;
• Technical support: Including underlying architecture optimization, security audits, and product testing, which are not tasks that can be solved with money alone;
• Market promotion: Engaging in content marketing, community viral growth, joint events, etc., to pull exposure and improve conversion across the entire chain;
• Compliance collaboration: Pre-investment due diligence, license applications, and legal consulting must be arranged in advance; don’t wait until something goes wrong to find a lawyer.

The most typical case is Binance Labs.

The rise of Polygon and Injective was not just due to the amount of financing but also 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 (the incubation brand newly established by DuJun): investing in projects while also bringing them into the fold, turning "running alongside" into "co-building."

It is worth noting that even some large funds that appear to still be making primary investments, such as a16z, have quietly integrated incubation into their systems. They provide project teams with recruitment support, government communication channels, compliance framework design, and even launched the Crypto Startup School to systematically train teams on how to start from 0.

This is no longer the old logic of "I give money, you fend for yourself."

In short, incubation-type investment is a game of heavy collaboration. It does not treat projects as "financial targets" but as "long-term partners."

If you only want to invest and walk away, you may not be able to navigate this space. 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.

Characteristics and Legal Challenges of Incubation-Type Investment

However, it must be said that incubation-type investment is not a magic bullet.

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 global environment of tightening regulations, the deeper the participation, the greater the responsibility, and the higher the risk of stepping on landmines.

If VC is about "investing and waiting," then incubation is more like "getting personally involved in the game." And this game is not always fair, nor is it always safe.

Portal Labs suggests looking at the "high risk + high participation" characteristics of this path from three angles:

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 might find yourself in product meetings, participating in the design of token economic models, or even personally seeking wallets, negotiating listings, and building communities.

It sounds like "helping a bit more," but the law does not see it that way.

Are you an investor? An advisor? Or a "de facto controller"?

If there are no clear lines drawn in contracts and structures, regulatory bodies or project parties may once they pursue accountability, likely determine that you constitute "related party transactions," "de facto control," or "shadow director," and bear legal responsibility.

Especially when projects involve fraud, illegal financing, or user asset losses, you may not be a bystander but rather a "second defendant."

2. Diverse Revenue Paths, Heavier Compliance Responsibilities

One of the benefits of incubation is the diversity of exit methods.

You might participate in project revenue sharing, design token buyback mechanisms, bind ecological profits, or even collect product revenue rights. It sounds like an upgrade in capital efficiency, but it also means you need to deal with more diverse compliance challenges. For example:

• Does it constitute an unlicensed securities issuance?
• Does the revenue agreement violate local dividend regulations?
• Is tax declaration or filing required?
• Does the token buyback involve market price manipulation?

If you handle these issues with a compliant structure, the risks are manageable; but if you are acting as an individual and participating directly, it is equivalent to "running naked," with all risks borne by yourself.

3. Tokens Remain a "High-Risk Zone"

Regardless of whether you are incubating RWA, DePIN, ZK, or AI narratives, one unavoidable question is: should you issue a token?

Once you issue a token, you cannot avoid the issue of how different countries classify token attributes.

• In the U.S., the SEC's stance is almost a blanket approach, and functional tokens can easily be classified as securities;
• In Hong Kong, the SFC requires that highly volatile tokens only be offered to professional investors, causing many projects to get stuck in the admission process;
• In Singapore, if a token involves stable returns or predictable returns, it must be filed with the MAS in advance, or it may be considered an illegal issuance.

What complicates matters further is that many incubation projects adopt a "global collaboration + multi-location deployment" model. For example: you form a team in Singapore → issue a token in the Cayman Islands → and finally want to list on exchanges in Korea or Japan. It sounds like a clear division of labor and reasonable logic, but from a regulatory perspective, this operation may have already crossed multiple red lines.

Compliance Paths and Structures for Incubation-Type Investment

In the face of the complex situation of "deep participation + cross-border operations + multi-role benefits," the core capability for safely entering incubation-type investments is not project investment, but rather establishing compliant structures.

Specifically, Portal Labs recommends starting from three key dimensions:

1. Ensure "Identity Isolation"

Whether providing funds or resources, Portal Labs does not recommend that investors directly bind to projects "as natural persons." The reason is simple: if something goes wrong with the project, individuals bear the consequences, exposing investors to highly uncertain legal risks.

A more mature approach is to establish a dedicated investment structure offshore, with common paths including:

• Cayman SPV: Used to hold token shares and distribute profits, flexible and cost-effective, it is the standard configuration for current crypto funds;
• BVI holding company: Suitable for equity investments, combined with trust or family office structures for tax optimization;
• Singapore exempt fund structure: Suitable for family capital for portfolio management, also beneficial for subsequent tax declarations, bank account openings, and other compliance operations.

These structures are not just tax and settlement tools; they are the first firewall for isolating identity risks and managing compliance responsibilities.

2. Token Design Must "De-Securitize" in Advance

Many countries do not oppose you issuing tokens; they oppose you issuing a token that looks like a "security."

If you are in a restricted area, such as mainland China, then don't act yet. But if you choose a region with more lenient policies, then from the design stage, you must stay away from regulatory high-pressure lines.

You can focus on the following optimization points:

• Use SAFT to bind rights first and delay issuance, avoiding immediate "securities issuance" scrutiny;
• Do not promise returns, even if it is "annualized 3%," as it may be classified by regulators as an investment contract;
• Highlight the "use case" of the token rather than its "selling point," such as using it to offset transaction fees, participate in governance, or exchange for services, rather than holding it for appreciation;
• Bind it to ecological behaviors, such as locking up tokens + task incentives, unlocking usage scenarios, rather than linear releases. This type of "behavior-binding model" is more likely to be accepted by regulators as a functional token.

In short, you can issue tokens, but don’t issue them as if you are selling equity.

3. Match "Landing Jurisdiction" to Market Goals

The regulatory environment varies greatly across different regions; choosing the wrong launch location may not just mean earning less but could mean being unable to launch at all.

Therefore, many people who issue tokens often look first at who has more money or which exchanges are easier to negotiate with, but this is actually incorrect. The first step in structural design should be to consider "where you want this project to ultimately land."

• Planning to target U.S. users? Then don’t touch Reg A; it’s lengthy and expensive. It’s better to look directly at Reg D (for accredited investors) or Reg S (offshore issuance) for exemptions;
• Preparing to start in Hong Kong or Singapore? Then engage with local VASP regulations early, or enter a regulatory sandbox for small-scale testing;
• Uncertain about the market's final destination initially? Then consider a flexible combination structure like "Cayman + BVI," allowing for easy switching of paths for license applications later on.

These structures do not have to be complex, but you need to set them up before the project goes live and before the token model is finalized. Once market feedback comes in, going back to fix compliance is usually too late.

Who is Incubation-Type Investment Suitable For?

Ultimately, incubation-type investment is not a "betting game," but a "long-term collaboration."

It requires not just capital but a comprehensive investment of time, resources, and strategic collaboration. You not only need financial support but also the ability to collaborate on project implementation and integrate resources across domains.

However, if you prefer a "light participation, high liquidity" asset allocation approach, or wish to "invest and walk away, bearing your own risks," then incubation-type investment may not be your ideal field.

Of course, if you are a participant who believes in long-termism, willing to root yourself in the industry ecosystem, and eager to genuinely integrate your experience, resources, and vision into a project's growth path, then the potential returns from incubation-type investment are not just multiples of returns but also an opportunity to co-build the future.

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