Last May, David Gan sent a cryptic email to the investors in his blockchain-focused venture firm, Inception Capital. Gan informed them that his father, a retired high-ranking Chinese government official, was under investigation and that he would be traveling to China. Then, according to investors who spoke with Fortune, he went silent.
The investors, or limited partners, had backed Gan for a reason. In 2019, the 28-year-old Gan was named to the 30 under 30 Asia list for his work as managing director of Huobi Labs, one of the world’s largest crypto platforms, where he helped incubate and invest in blockchain projects. He left in 2021 to raise his first $50 million venture fund backed by top names including Bill Ackman, Alan Howard, Y Combinator CEO Garry Tan, and Galaxy before closing a second $30 million fund of fund vehicle in 2024. According to Securities and Exchange Commission filings, Inception manages nearly $100 million of assets.
But Gan’s investors were rankled by his apparent disappearance over the summer, voting in his absence to wind down the fund. In late June, during the middle of the tally, Gan resurfaced and, soon after, agreed to relinquish certain key responsibilities in the firm. Now, as Inception continues to work with its LPs to figure out a transition strategy, the incident reflects the continued risks facing investors in the volatile crypto industry, especially in firms with foreign ties.
“During my absence when I traveled back to China to help my father navigate a complex situation, the team as a whole did an incredible job of serving our LPs and portfolio companies,” Gan said in a statement shared with Fortune. “Today, the fund is thriving, and I have been back in my day-to-day role for months. From day one, everything we have done and plan to do is in the best interest of our LPs.”
OP Crypto
Gan raised Inception’s first fund during crypto’s last major bull cycle in 2021, a time when Bitcoin and Ethereum prices were soaring and deep-pocketed investors lined up to fire off checks at untested venture firms.
While Gan had never run his own fund, he was well-versed in finance. In 1999, he moved to the U.S. from China, starting college at Lehigh University in 2008, where he earned a bachelor’s degree in financial mathematics, before returning to Shanghai to work for Morgan Stanley Huaxin Securities as an analyst. After working in China’s burgeoning tech scene for a few years, he joined Huobi’s internal venture arm, leading investments for its internal venture fund as well as managing its fund of fund’s operations.
Gan’s pitch for his own venture fund, originally named OP Crypto, was to bridge the two worlds where he grew up. In a 2021 interview, Gan said that the U.S. needed to draw on Asia’s crypto resources, including its publicity machine and its prodigious opportunities for user acquisition. “We have an advantage,” he said. “There are no Asian-backed institutional funds in Western markets.”
The pitch worked. Gan later told TechCrunch that he targeted family offices and high-net-worth individuals who wanted “diversified” exposure to early-stage crypto venture deals. “Instead of family offices trying to make the best investments themselves, this vehicle is a good hedge and risk-adjusted downside vehicle,” Gan told TechCrunch.
His new fund attracted $50 million in investment from top players, from Ackman and Howard to prominent U.S. crypto firms like Galaxy and Digital Currency Group. All declined to comment for this story.
The disappearance
By all accounts, Inception thrived. Early this year, the fund was doing well enough to close a second, $30 million vehicle that invested in other crypto funds. According to Inception’s February filing with the SEC, the firm managed at least $30 million more in assets than it had originally invested, though an investor told Fortune that one of the firm’s largest positions is in Merit Circle, a gaming-focused blockchain whose token has sharply declined in valuation over the year. Inception is also a pre-seed investor in other crypto projects including the Ethereum layer-2 blockchain Scroll and the crypto exchange liquidity network Elixir Protocol.
Gan’s email from May, along with his apparent disappearance right after, set off alarm bells with Inception’s LPs. One investor tried to learn details on Gan’s whereabouts from Inception’s remaining staff, who responded that the only communication they received was from Gan’s lawyer. Others were left in the dark, though some told Fortune they found it strange that Gan had decided to share the initial details of his father’s investigation.
According to a public notice dated April 17, 2024, from the Central Commission for Discipline Inspection, the supervisory organ of the Chinese Communist Party, Gan’s father was a former member of the Party Committee and deputy director and first-level inspector of the Hubei Provincial Public Security Department, a senior position tasked with state affairs and governance that took on even more importance during COVID—the capital of Hubei is Wuhan. The announcement said that he was under investigation for “serious disciplinary and legal violations.” There is no indication that the investigation was related to crypto.
Inception told its LPs that Gan had traveled to China to voluntarily aid in his father’s investigation, starting a period where he could not communicate directly with his investors or through social media. A spokesperson for Inception Capital declined to comment further.
The firm’s LPs responded to Gan’s mysterious absence by voting for a controlled wind-down, meaning Inception would continue to manage its existing investments on the original time horizon of the fund, but not call the remaining 25% of capital for its first fund. The firm characterized the process as a “harvesting period.” The vote, however, coincided with Gan’s reappearance in June, when he apologized for his absence and agreed to relinquish his ability to manage or transact with the fund’s multi-signature wallet.
The future of Inception is now in question. A snapshot of the firm’s website from April shows that the team has downsized in the past few months, with four of its eight employees leaving, though Inception has added two new deal analysts.
In a statement shared with Fortune, Gan said that Inception plans to formally propose a plan to its LPs in October that would allow them to continue to invest through the firm with the remaining 25% of the capital that has yet to be called, though they are also able to opt-out. One investor told Fortune that they hoped Inception would continue to invest.
“We look forward to continuing to add value to our ecosystem of investors and builders for years to come,” Gan said.
