Case Study: Funding Dilemma for EcoCycle

Background
EcoCycle, a startup founded by Rohan, aimed to revolutionize waste management in Kerala by introducing an innovative recycling system. With a strong passion for sustainability, Rohan developed a prototype and piloted it in a small town, receiving positive feedback.

The Funding Conundrum
To scale up operations and expand across Kerala, EcoCycle required ₹50 lakhs in funding. Rohan had to decide on the most suitable source of finance. He considered the following options:

1. *Angel Investment*: Rohan’s friend, an angel investor, offered ₹25 lakhs in exchange for 10% equity.
2. *Venture Capital (VC)*: A VC firm expressed interest in investing ₹50 lakhs for 20% equity.
3. *Loan*: A bank offered a ₹50 lakhs loan at 12% interest per annum.
4. *Personal Funds*: Rohan had ₹20 lakhs in savings, which he could invest.
5. *Crowdfunding*: Rohan also considered raising funds through a crowdfunding platform.

Challenges and Considerations
Rohan faced several challenges and considerations while evaluating these options:

– *Equity Dilution*: How much equity was Rohan willing to give up?
– *Interest Payments*: Could EcoCycle afford the interest payments on the loan?
– *Repayment Terms*: What were the repayment terms for the loan and VC investment?
– *Control and Autonomy*: How much control would Rohan have to sacrifice with external investments?
– *Risk and Return*: Which option offered the best risk-return tradeoff?

Questions for Discussion
1. What are the pros and cons of each funding option for EcoCycle?
2. How should Rohan evaluate the trade-offs between equity dilution, interest payments, and control?
3. What are the key considerations for Rohan when choosing between angel investment, VC, loan, personal funds, and crowdfunding?
4. How can Rohan mitigate the risks associated with each funding option?
5. What are the implications of each funding option on EcoCycle’s future growth and scalability?

Learning Objectives
1. Understand the different sources of finance available to entrepreneurs.
2. Analyze the pros and cons of each funding option.
3. Evaluate the trade-offs between equity dilution, interest payments, and control.
4. Develop critical thinking skills to choose the most suitable funding option for a startup.
5. Apply lessons learned to real-world entrepreneurial scenarios.

References
1. Baron, R. A., & Shane, S. A. (2020). Entrepreneurship: A Process Perspective. Cengage Learning.
2. Keefe, P. (2019). Entrepreneurial Finance: Fundamentals of Financial Planning and Management. Routledge.
3. Kerala Startup Mission (2020). Funding Options for Startups in Kerala.