India should address regulatory grey area in tokenomics to support startup funding

“Tokenomics is the emerging avenue for raising equity and debt funding or revenue-based funding by start-ups and asset owners in India. At present, this is a regulatory grey area. We need clear regulation, investor awareness and technology adoption to develop tokenomics in the country. Tokenomics refers to the fragmentation of real world assets into digital units or tokens, which can then be sold to investors through blockchain platform. Tokenomics helps various asset owners to raise funds from a broad base of investors, ranging from financial institutions to high networth investors. These digital units are also liquid as they can be traded just like stocks and bonds in the secondary market,” said Mr. Satish Kataria,Co-founder, Fandora, India’s first content Intellectual Property Tokenisation platform. Mr. Kataria was speaking at the Cross-Border Startup Summit organized by All India Association of Industries (AIAI), WTC Mumbai and Sardar Patel Technology Business Incubator.

Companies like Ryzer and Fandora have pioneered blockchain-based tokenized fund raising platform inIndia for real estate and entertainment sectors. Fandora is a platform where entrepreneurs from entertainment, books, music and sports industries can raise funds by converting their intellectual property into tokens. The market for creative-content based intellectual property in India is estimated at Rs. 17,000 crore. India has 1.2 lakh growth-stage startups and MSMEs that can benefit through this tokenized fund-raising platform.

Earlier in his welcome remarks, Dr. Vijay Kalantri, President, All India Association of Industries (AIAI) and Chairman – MVIRDC World Trade Center Mumbai suggested, “India needs a dedicated ministry for start-up ecosystem, which is facing various challenges such as slowdown in funding, stringent norms of angel taxation and complex procedures for doing business.”

Dr. Kalantri called for improving ease of doing business, capacity building support for growth-stage startups, easing angel tax norms for genuine startups and effective implementation of government schemes and incentives for startups.

Dr. Kalantri pointed out that the global recessionary outlook, rising interest rates in the global market and the uncertainty amidst geopolitical tension are some of the reasons for decline in start-up funding in India.

Another reason pointed out by experts for slowdown in funding is the unsustainable business model and absence of roadmap to attain profitability among Indian start-ups. Dr. Kalantri remarked, “Our start-ups should re-examine their strategy to become profitable instead of focusing on unsustainable growth in turnover.”

In his remarks, Mr. Devansh Lakhani, Startup Fundraising expert & Director, Lakhani Financial remarked, “Byjus, Pharmeasy, Ola, Pinelabs, Swiggy all have got their valuation marked down by approximately 30% which shows investors want to back profitable investors and not loss making ones.”

Speaking on this occasion, Mr. Vikram Pandya, Director- Fintech, S P Jain School of Global Management pointed out, “Lack of product market-fit, me-too (copied) business models, increasing competition, highly price sensitive market resulting in razor thin margins and lack of R&D-led innovation are some of the reasons behind high startup mortality rate in India.”

Mr. Pandya suggested, “Government should nurture entrepreneurship culture, add that as a topic in education, increase R&D in emerging technologies and make funding more accessible.”

Mr. Shrikant Patil, CEO & MD, DigiAlly outlined the importance of product-market fit to develop right product for the right customer segment at sustainable cost.

Start-up entities can also set up structures in foreign countries to raise funding from global investors.However, they need to be wary of regulations applicable for offshore entities. Sharing insights on managing regulatory procedures while setting up offshore entity, Ms. Priya Kapasi, Principal Associate, Treelife advised, “When it comes to offshore entity structuring, such as flip or externalization, startups should prioritize gaining a comprehensive understanding of the legal and tax implications involved. This includes considerations such as Exchange Control Regulations and Transfer Pricing, among others. Thorough research and compliance with both Indian regulations and the regulations of the chosen offshore jurisdiction are also crucial.”

The event was attended by start-up founders, investors, start-up mentors, coaches, financial institutions and other ecosystem players in the start-up industry.

Dr. Vijay Kalantri, President, All India Association of Industries (AIAI) and Chairman – MVIRDC World Trade Center Mumbai addressing the 'Cross-Border Startup Summit' at WTC Mumbai. Dignitaries on the dais (from left to right) Ms. Rupa Naik, Executive Director, MVIRDC WTC Mumbai, Mr. Shrikant Patil, CEO & MD, DigiAlly and Mr. Vikram Pandya, Director- Fintech, S P Jain School of Global Management

Distinguished speakers at Cross-Border Startup Summit held at WTC Mumbai. (From left to right): Mr.Satish Kataria, Co-founder, Fandora, Mr. Shrikant Patil, CEO & MD, DigiAlly, Mr. Devansh Lakhani,Startup Fundraising expert & Director, Lakhani Financial and Mr. Parvez Kudrolli, Principal Associate Khurana & Khurana Advocates and IP Attorneys