Question

Anil wants to start a business involving a new but relatively simple product that can be produced in a short amount of time and with less than $100,000. His market research suggests that there would be widespread demand for the product. A favorable method to bootstrap the production costs would be to:_______.

Answer 1

Answer: Fund the production costs through pre-orders

Explanation: First, let us define what pre-orders are:

- Pre-order is a request to purchase a product before it has been released, or made available to the public.

Looking at the scenario given in the question above, there will be widespread demand for the product, therefore the product will not have a problem when it comes to selling.

This is an advantage for the business, in that the customers will be willing and ready to make pre-orders, because they already know that the product would be in high demand, and making pre-orders will be a sure way to secure the product.

This can therefore be used to the advantage of the business to fund production costs for the product.

Answer 2

The options are:

a. Issue a private placement of equity securities

b. Seek a commercial loan from a large bank

c. Crowdfund production costs through pre-orders

d. Issue bonds to wealthy private investors

Answer:

The correct answer is c. Crowdfund production costs through pre-orders .

Explanation:

Crowdfunding is a collective financing network, usually online, that through financial donations or other donations, manages to finance a certain project in exchange for rewards, participation altruistically.

The projects for which crowdfunding is used as a source of financing can be very varied: from musical or artistic projects (getting money for a movie or a short) to political campaigns, debt financing, creation of schools or the birth of companies, among others.