Question

5 — case study: amma and financing options

learning objective: examine an additional form of financing.

oculus vr raised $2.5 million on kickstarter for its vr headset.

what does this show about crowdfunding?

a.) crowdfunding removes reliance on traditional investors.

b.) crowdfunding tends to be effective only for small projects with limited objectives.

c.) crowdfunding can secure substantial startup funds and attract market attention.

d.) crowdfunding ensures sustained profitability for startups.

Explanation:

Analyze the case study scenario

The prompt presents a real-world scenario: "Oculus VR raised $2.5 million on Kickstarter for its VR headset."
Kickstarter is a well-known crowdfunding platform where individuals or businesses can raise funds from a large number of people, typically via the internet. Raising $2.5 million is a very large sum of money for an early-stage startup, demonstrating that crowdfunding is not limited to tiny, low-budget projects.

Evaluate option (a)

Option (a) states: "Crowdfunding removes reliance on traditional investors."
While crowdfunding provides an alternative path to raise initial capital, it does not completely remove reliance on traditional investors (like venture capitalists or angel investors) for subsequent, larger rounds of funding. In fact, Oculus VR later raised substantial venture capital before being acquired by Facebook. Therefore, this statement is too absolute.

Evaluate option (b)

Option (b) states: "Crowdfunding tends to be effective only for small projects with limited objectives."
The case study directly refutes this. Raising $2.5 million for a cutting-edge virtual reality headset is a large-scale project with highly ambitious technological objectives. Thus, this option is incorrect.

Evaluate option (c)

Option (c) states: "Crowdfunding can secure substantial startup funds and attract market attention."
This statement perfectly aligns with the Oculus VR example. Raising $2.5 million represents "substantial startup funds." Furthermore, a highly successful Kickstarter campaign generates massive public relations buzz, media coverage, and consumer interest, which directly translates to "attracting market attention." This is a primary benefit of crowdfunding.

Evaluate option (d)

Option (d) states: "Crowdfunding ensures sustained profitability for startups."
Crowdfunding is a method of raising initial capital (financing). It does not guarantee or "ensure" sustained profitability, which depends on long-term operations, cost management, product-market fit, and ongoing sales. Therefore, this option is incorrect.

Answer:

• a.) Crowdfunding removes reliance on traditional investors.
• b.) Crowdfunding tends to be effective only for small projects with limited objectives.
• c.) Crowdfunding can secure substantial startup funds and attract market attention. (Correct answer)
• d.) Crowdfunding ensures sustained profitability for startups.