Researching the Financing of Sports Companies Assessment Answer

Advantages of Bootstrapping Approach

Bootstrapping is deemed the outstanding non-dilutive funding technique which allows the team to get 100 percent of the profits. Moreover, this technique enables the entrepreneur to completely emphasize the major aspects of the business like product development, and others. Also, it allows the bootstrapper to reserve the right to entire developments and notions which were utilized during the business development. This method of self-funding is interest-free wherein no fees are involved (Michaelis et al. 2022). Additionally, there is no inclusion of lengthy applications or investors pitching in this financing method. The entrepreneur possesses more control over the path his organization goes when he does not have to keep shareholders contended. Such an extent of control might enable him to focus more on placing a robust foundation and perfecting functions through trials instead of thinking of errors that may contribute to more long-run growth. There is independence from the viewpoints of investors, It can be said that an entrepreneur might take all the decisions autonomously so he is capable to develop something exclusive, testing strengths, and being autonomous of the guidelines of the investors (Aishwarya 2020). Besides, the creation of financial bases of business by an entrepreneur is a great appeal for forthcoming investments. Investors like venture capital businesses, special funds, and more are extremely assured in funding businesses that are already secured and have shown the commitments and pledges of the proprietors. This method of self-financing also provides value to individuals. The absence of initial funding enables entrepreneurs for uncommon techniques to resolve issues, develop novel offers in the marketplace, and demonstrate creative thinking (Fadil and St-Pierre 2021).

Disadvantages of Bootstrapping Approach

There is an issue of less credibility with the bootstrapping technique. It may be complex to get the contacts required for brand building, and more in the absence of the support of experienced investors. Therefore, it can be said that without guidance, and funding from someone who comprehends the start-up, one needs to develop his customer base and find out patterns on his own (Michaelis et al. 2022). Moreover, the issue with bootstrapped businesses is that the growth rate inclines to be slow when compared with other organizations. When bootstrapped businesses are capable to develop an effective small establishment, they are not capable to scale at a greater speed. It can be harmful to their interests. Besides, the start-ups which utilize this funding method are under the momentous pressure of instantly generating revenue. It is so revenue is deemed the only sustainable origin of finance for such companies. It places the start-up at a drastic disadvantage mainly when its rivals have professional funding (Lama 2021).

Another major risk with the bootstrapping technique is putting one’s own money directly into the organization. When the business confronts a problem, whether it's because of a lack of sales or an unpredicted expenditure, it might have a major impact on the individual. Instead of having fewer debts to worry about, self-financed businesses are more probable to experience cash flow stagnation. The start-ups which utilize this funding technique confront a severe resource crunch. Such businesses are short of finances when it comes to recruiting novel ideal individuals (Block et al. 2021).

References

Aishwarya, C., 2020. Financing the Startup Economy-A Critical Study. Journal of Entrepreneurship and Management , 9 (1), p.35.

Block, J.H., Fisch, C. and Hirschmann, M., 2021. The determinants of bootstrap financing in crises: evidence from entrepreneurial ventures in the COVID-19 pandemic. Small Business Economics , pp.1-19.

Fadil, N. and St-Pierre, J., 2021. Growing SMEs and internal financing: the role of business practices. Journal of Small Business and Enterprise Development , 28 (7), pp.973-994.

Lama, U., 2021. Bootstrap financing on operational effectiveness of nepalese smes (Doctoral dissertation).

Michaelis, T.L., Scheaf, D.J., Carr, J.C. and Pollack, J.M., 2022. An agentic perspective of resourcefulness: Self-reliant and joint resourcefulness behaviors within the entrepreneurship process. Journal of Business Venturing , 37 (1), p.106083.

Example 1: Crowdfunding Method Used by Fantasy Sports Start-up ASX Sports

Advantages

The benefit of the crowdfunding platform for ASX Sports is the flexibility with which capital can be raised. Moreover, peer-to-peer crowdfunding provides a substitute for this sports start-up which might not be eligible for conventional bank financing. It is further a great means to associate with prospective clients and attain feedback on the product or services. This will also enable the investors of sports startups to track the progress so that they can promote the brand via their networks (Troise et al. 2023).

Disadvantages

For the sports startup, there will be a risk that a borrower might eventually not be capable to fulfill the repayment obligations. Also, this fort of funding is subject to less tough rules that imply lesser fiscal guarantees are provided. In case the project (startup) fails, the crowdfunding financing is visible and might cause reputational loss to those who have promised money (Miglo 2022).

Example 2: Angel Investors Financing Used by Sporjo (Sports Education Platform)

Advantages

The benefit of angel investor financing is that the business angels are usually negotiable since they capitalize from their own money. It can be said that the flexibility and risk-taking competencies make the angels one of the ideal sources of financing for sports startups. Also, this technique can enable the startup to attain expert support, directions, and contacts which can assist the startup skyrocket (White and Dumay 2020).

Disadvantages

The limitation is that this financing technique allows business owners to give away between 10 percent and 50 percent of their start-up in exchange for capital. Also, business angels are in startups to make money, they demand to see a momentous return on their investment. Therefore, it can be said that angel investors have higher expectations which can be a disadvantage (Ahuja,2022).

References

Ahuja, S.,2022. Iinnovative sources of business finance. Advances in Literature, Social Science, Commerce and Management , p.113.

Miglo, A., 2022. Crowdfunding and bank financing: substitutes or complements?. Small Business Economics , 59 (3), pp.1115-1142.

Troise, C., Battisti, E., Christofi, M., van Vulpen, N.J. and Tarba, S., 2023. How can SMEs use crowdfunding platforms to internationalize? The role of equity and reward crowdfunding. Management International Review , 63 (1), pp.117-159.

White, B.A. and Dumay, J., 2020. The angel investment decision: Insights from Australian business angels. Accounting & Finance , 60 (3), pp.3133-3162.

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