Web3 scaled quickly, on ambition and on trust. Projects raised substantial sums in private rounds, often before a product existed or a token had been delivered. Investors backing those rounds weren’t simply backing an idea. They were relying on specific representations: what would be built, how their capital would be used, how the project would reach market.
When a project starts to unravel, the signs rarely arrive all at once. A launch is delayed. A milestone is quietly rewritten. Updates get less specific, then less frequent. Public announcements, market activity and the movement of capital stop telling the same story. Most investors are left with the same conclusion: the market turned, the project failed, the money is gone.
That conclusion is sometimes right. It is also, often enough to matter, wrong.
Why failure and misconduct get treated as the same thing
A legitimate project can fail without anyone doing anything wrong. Not every loss warrants investigation, and we don’t treat every unsuccessful investment as one. Each matter we look at is assessed on the strength of the evidence available, whether the people who controlled the capital can be identified, and whether there’s a realistic path to recovery. Roughly one in four matters reviewed meet that bar.
The reason the other three don’t is instructive. Most of the time, what happened to an investor really was market risk: a product that didn’t find users, a team that ran out of runway honestly, a sector-wide downturn that took a reasonable plan down with it. Investment risk is real, and it isn’t something a review process should try to explain away.
What changes the analysis isn’t the size of the loss. It’s whether what investors were told, at the time they committed capital, matches what can now be shown to have actually happened. That’s a narrower, more specific question than “did this fail,” and it’s the one that actually determines whether a matter goes further.
Why Web3 makes this harder to see
Web3 raises are structurally more complex than most private investments. Corporate entities cross borders. Capital moves through wallets rather than bank accounts. Promotion spreads through private groups and closed communities rather than public filings. An individual investor, even a sophisticated one, usually lacks the time, access, or specialist knowledge to assemble the full picture on their own.
That combination, investors and operators who have actually built and funded Web3 projects, alongside lawyers with corporate and securities backgrounds, is what makes the difference between reading a whitepaper and reading a raise the way someone who has run one would. It’s the difference between noticing that a claim sounds reassuring, and knowing specifically what would have to be true for it to hold up.
What actually gets tested
The work starts well before any conversation with a founder. It typically involves the SAFT or OTC agreement itself, fundraising materials, and investor communications, tested against the wider public record: development activity, media coverage, token distribution, exchange listings, and market conduct. It also involves how the raise was promoted, including undisclosed promotional arrangements and coordinated activity that was made to look organic.
Every review is also tested against the securities laws, disclosure obligations and anti-fraud standards that applied when the capital was raised and the investment promoted. In the United States, that includes federal securities law and SEC rules. Elsewhere, it means the corresponding regulatory framework in the relevant jurisdiction. Where the trail requires it, independent forensic and blockchain specialists verify transactions and strengthen the evidence directly.
What happens once the evidence is in
By the time a founder is contacted, the assessment is already complete and the basis for recovery has already been established. Founders are given a private opportunity to respond and reach a commercial resolution. The goal is to resolve the matter without unnecessary publicity or escalation, and direct engagement is the preferred route, though it isn’t the only one.
Of the matters accepted, 78% have resulted in the recovery of investor capital. In the remainder, the evidence supported formal escalation, and the same record, already structured for review by external counsel, litigation funders, and regulators, moved forward without needing to be rebuilt from scratch.
The point underneath all of it
Projects can fail. Markets can fall. Neither removes the obligation to account for how investor capital was raised, represented, and used.
This piece describes the principles behind our own review process. It is not legal advice, and it should not be read as a view on any individual investment.