Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
Chapter 12: Bootstrapping for Resources
Test Bank
Multiple Choice
1. When someone states, “I don’t have money to start a business,” what fact might one
consider?
a. Most businesses start without any formal investment.
b. This is a valid reason for not starting a business.
c. Formal investment will be needed to make a successful company.
d. People who have no money cannot start a business.
2. What percentage of startup businesses start without any formal investment?
a. 98%
b. 75%
c. 50%
d. 24%
3. What is the name given to the process of building a business with very little funding?
a. seed startup
b. bootstrapping
c. zero funding
d. skeleton funding
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
4. Jose starts a small restaurant. On weekends, he works with his cousin to construct
the tables, chairs, and counters that will go into the restaurant. What is the name given
to the result of these efforts?
a. labor equity
b. owner labor
c. sweat equity
d. family ownership
5. SuLin is setting up a small construction shop and uses his personal credit card to
purchase the company’s basic equipment. This process is referred to as which of the
following:
a. venture capital
b. credit
c. external funding
d. bootstrapping
6. What is the advantage of angel investor funding?
a. You may gain advice and guidance.
b. You will not have to pay for the investment.
c. You will not be expected to use your own money toward your business.
d. The funding is easy to attain.
7. What are the “3 Fs”?
a. The three major sources of formal funding.
Instructor Resource
Neck, Entrepreneurship
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b. A slang term meaning angel investors.
c. Family, friends, and fools.
d. Free financial funding.
8. Which of the following is an advantage of bootstrapping?
a. You can expand your business faster.
b. You will avoid risk.
c. Outside investors are more likely to fund you if you have bootstrapped.
d. All of these.
9. A company launching 100% through boostrapping would use this source of funding:
a. angel investor
b. venture capital funds
c. the use of personal funds
d. a bank loan
10. Using whatever resources you have to save money while you are getting your
business started is referred to as which of the following?
a. seed money
b. guerilla startup
c. penny pinching
d. skeletal startup
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
11. Seth starts his company with computers that he found on craigslist.com and some
office furniture from the basement of his parents’ home. This strategy would be
considered which of the following?
a. startup
b. sweat equity
c. penny pinching
d. zero-based funding
12. The huge amount of effort an entrepreneur puts in to get a business up and running
is known as ___________.
a. penny pinching
b. bootstrapping
c. sweat equity
d. affordable loss
13. The process of raising capital for a new venture from a large audience, usually
through the Internet, is called ____________.
a. crowdfunding
b. penny pinching
c. crowdsourcing
d. bootstrapping
14. Using the Internet to attract, aggregate, and manage ostensibly inexpensive
or even free labor from enthusiastic customers and like-minded people is called
_____________.
a. crowdfunding
b. penny pinching
c. crowdsourcing
d. bootstrapping
15. What should a startup focus on when thinking about funding?
a. Focus on following your balance sheet.
b. Focus on the money on hand.
c. Remember how much money you will make when the business is successful.
d. Build a strong financial forecast.
16. Crowdfunding is a resource for _________.
a. talent
b. intellectual property
c. money
d. labor
17. Crowdsourcing is a resource for _________.
a. money
b. investors
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
c. physical capital
d. labor and talent
18. Crowdfunding can best be described as:
a. obtaining funds from a group of professional investors
b. obtaining funds from a small audience, who together form “the crowd”
c. raising capital from a large audience, usually through the Internet
d. a high-risk strategy to raise startup money
19. In reference to crowdfunding, a backer is best described as:
a. a person who will pay back a loan if you fail to do so
b. a person who contributes support in a crowdfunding venture
c. a financial institution that lends money to a startup
d. the financial institution that manages the transfer of money
20. Crowdsourcing refers to which of the following?
a. attending every possible networking event to make valuable business connections
b. increasing value or ownership interest created by someone as a result of hard work
c. reimbursing all of your advisers and consultants with equity
d. using the Internet to attain free or reduced labor from people interested in your
product or cause
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
AACSB Standard: General business and management knowledge areas
21. Crowdfunding and crowdsourcing would both be considered which of the following
strategies?
a. formal fundraising
b. bootstrapping
c. angel funding
d. none of these
22. Sharing medical information so as to help in the development of pharmaceuticals
and medical devices that can be used to improve medical treatment is an example of:
a. networking
b. crowdfunding
c. crowdsourcing
d. angel investing
23. PatientsLikeMe is a social network for people living with a wide variety of diseases
and medical conditions. Which of the following is an example of how PatientsLikeMe
uses crowdsourcing in its business model?
a. pharmaceutical companies provide financial backing for the site’s network resources
to reduce infrastructure costs
b. members enter detailed medical information themselves to reduce labor costs
associated with aggregating data
c. founders host monthly social events for all full-time employees to promote a sense of
community across the company
d. a small group of members are paid to participate in market research projects in order
to adjust the site in response to members’ needs
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
24. Crowdsourcing is a boostrapping method that saves money while obtaining valuable
______ resources.
In addition to getting the information necessary to develop their products faster, what
other benefit is there for the sponsor of crowdsourcing for medical treatment?
a. information
b. financial
c. technological
d. social media
25. Wikipedia encouraging its users to edit and update its free online encyclopedia is an
example of:
a. patronage
b. equity
c. crowdfunding
d. crowdsourcing
26. Which of the following describes the primary benefit crowdsourcing provided Local
Motors? When building a new sports car, the company focused on designing essential
parts like the engine and chassis that require expertise, while Local Motors had its
community of hobbyists, designers, and engineers compete to design secondary
exterior parts.
a. They rapidly increased the number of employees working for the company.
b. They raised money quickly to fund their development.
c. They saved labor costs while improving efficiency.
d. They were able to employ 3D design software.
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
27. Wikihouse freely provides user-submitted blueprints for anyone who wishes to build
an affordable custom-built house with 3-D printing. This is an example of ______
because ______.
a. crowdsourcing; it uses the expertise of the crowd to greatly reduce the cost of design
and construction
b. crowdfunding; it uses the Internet to quickly generate a large user base for Wikihouse
c. bootstrapping; it allows amateur designers an opportunity to disrupt the construction
business
d. Wikifunding; it uses the open-source Wikipedia platform to generate new solutions
and opportunities
28. Which of the following needs can be addressed primarily through crowdsourcing?
a. A company wants to procure a library of freely downloadable photographs for its
photo app.
b. A company wants to increase profits by raising subscription fees to its video
streaming app.
c. A company wants to reduce waste in its manufacturing process by working with a
single vendor.
d. A company wants to raise funding to support expansion of its product lines.
29. According to the 2012 American Dream Composite Index, ______________ tend to
be between the ages of 24 and 35, are more likely to be men, and to have an income of
over $100,000 per year.
a. bootstrappers
b. crowdsourcing participants
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c. angel investors
d. crowdfunding backers
30. According to the text, small companies and individuals may choose to manufacture
prototypes in China because Chinese factories can manufacture in ______ batches at
______ costs.
a. multiple; moderate
b. small; low
c. frequent; high
d. large; low
31. Users of the popular GPS app Waze periodically report driving conditions while on
the road, allowing all users to benefit from live traffic updates. Waze is an example of
crowdsourcing because:
a. users have free access to the same traffic information.
b. users freely contribute traffic information for use by the app.
c. the app has a very large and loyal user base.
d. the app asks for donations at the end of each drive.
32. What businesses can use crowdfunding?
a. mostly photographers and filmmakers
b. mostly high-tech startups
c. mostly retail and real estate
d. all of these
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Neck, Entrepreneurship
SAGE Publishing, 2018
33. Unlike Kickstarter, Crowdfunder and Circle Up ________________.
a. allow funding requests under $1000
b. allow funding requests over $5 million
c. give backers the opportunity to become shareholders in a company
d. do not allow companies to offer equity as a reward
34. How much money can be raised through crowdfunding?
a. only small amounts, under $1,000
b. small amounts, generally under $5,000
c. as much money as can be raised through family and friends
d. from small amounts to amounts in the millions of dollars
35. What is the typical profile of the crowdfunding backer?
a. retirees who enjoy the more direct form of investment
b. young 24– to 35-year-olds who have an income over $100,000 a year
c. 40– to 60-year-olds with incomes over $250,000
d. millionaires looking to help the social good
36. How does Kickstarter get its money?
a. by charging a percentage of the funds obtained from each successful project
b. by charging members a modest fee for posting their request
c. by using crowdfunding themselves
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
d. by listing themselves as a nonprofit and getting grants
37. What project falls outside of Kickstarter’s rules?
a. technology products
b. charities
c. food and restaurant businesses
d. retail stores
38. What must be offered by someone who uses Kickstarter for a fundraising project?
a. They must create something to share with others.
b. They must offer to return the exact amount of the contributed funds within a given
period of time.
c. They must offer to give a portion of their funds to a charity.
d. A moneyback guarantee if a backer decides to rescind his or her contribution.
39. In addition to raising funds in a given period of time, what else is required in a
Kickstarter project?
a. The project must be available on a global basis since contributors can come from
anywhere.
b. Participants must subject themselves to a background check.
c. A specific fundraising goal must be set and met within the time period allowed.
d. They must create a video demonstrating or talking about their project.
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
40. What happens in Kickstarter if the funds are not raised in the given amount of time?
a. The project is automatically extended for another 30 days.
b. The project owner can keep the money raised up to the end of the period.
c. The project owner can transfer funds earned to a project of his or her choice.
d. The money is not earned and no money will be received.
41. What happens if the funds raised on Kickstarter exceed those specified at the start
of the project?
a. The excess money is contributed to a general fund.
b. The owner of the project can keep the excess funds.
c. No one is allowed to contribute once the goal has been attained.
d. The excess must be returned to the last contributors.
42. Which of the following could not be offered in a Kickstarter campaign?
a. free product or product sample
b. participation in a cash award raffle
c. presale delivery of the product or service
d. free tickets to a play
43. What is the most effective reward to offer to Kickstarter contributors?
a. a cash award
b. awards-in-kind that offer equivalent value for the cash contributed
c. promising contributors that they will be the first to receive the product, along with a
contribution award
d. offering to list the person as a founding contributor on all product and service
literature
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
44. The most established crowdfunding site is ____________.
a. Indiegogo
b. Kickstarter
c. Crowdrise
d. Tilt
45. How does equity crowdfunding differ from other types of crowdfunding?
a. Investors are given the opportunity to become company shareholders.
b. Funds are raised from a community of angel and venture capitalists.
c. Funds are provided by the government.
d. Financial institutions are allowed to raise funds on these sites.
46. What made equity crowdfunding possible?
a. the success of other crowdfunding sites
b. the JOBS Act, signed by President Obama
c. changes in Dow Jones
d. advances in the software of crowdfunding sites
47. In 2012, President Obama signed the JOBS Act, which ______________ in the U.S.
a. legalized crowdfunding
b. legalized equity crowdfunding
c. outlawed equity crowdfunding
Instructor Resource
Neck, Entrepreneurship
SAGE Publishing, 2018
d. legalized crowdsourcing
48. What is the characteristic of the patronage model of crowdfunders?
a. investors provide financial support with no expectation of direct return
b. investors are given prizes for their financial support, such as product samples or
experiences
c. equity is exchanged for the contribution
d. funds are treated as loans
49. What is the characteristic of the investor model of crowdfunders?
a. investors provide financial support with no expectation of direct return
b. investors are given prizes for their financial support, such as product samples or
experiences
c. equity is exchanged for the contribution
d. funds are treated as loans
50. What is the characteristic of the lending model of crowdfunders?
a. investors provide financial support with no expectation of direct return
b. investors are given prizes for their financial support, such as product samples or
experiences
c. equity is exchanged for the contribution
d. funds are treated as loans