RAISING FUNDS FOR THE CAPITAL ACCOUNT THROUGH AN APPEAL TO THE STOCKHOLDER Finding the capital forms part of the work of the promoter. When perform ing this labor he often resembles Gilbert's policeman in that "his lot is not a happy one." Ile is too likely to have to cool his heels in many an anteroom before he accom plishes the desired result. In the discussion of "Watered Stock" in the preceding book on Capitalization, we have already indicated something of the nature of the promoter's services and the method of rewarding them. For the present let us assume a corporation in existence and conducting a going enter prise. When the managers of such a cor poration decide that the business requires new capital, or that new capital could be used to advantage in the business, they can attempt to procure it directly through the corporation or they can seek the aid of other people who make a business of procuring capital for corporations.
If those in control of the affairs of a cor poration seek the aid of those who make an occupation of providing capital, — invest ment bankers or brokers, or, to use a term which includes both, dealers in securities, — they must pay these people for their services. Naturally the question arises whether or not the corporation can cut out the middlemen and, by appealing directly to those who have capital to invest, get the entire amount of funds which the investor is parting with. Of course this question is simply the special part the distribution of securities plays in the whole general question of the middle man and his rewards. It is no part of our purpose, however, to enter at length into the general question, but simply to discuss the issue with special reference to securities.
Corporations have not been successful in making an appeal directly to the capitalist. By capitalist we mean only some one with money to invest, whether large or small in amount, some one who controls capital to a value of from one hundred dollars up to many thousands. Locating the capitalist
and persuading him to invest his capital in a particular enterprise requires special skill and influence. When a dozen opportunities to invest are being offered skillfully and in fluentially, as is always the case, an offering made without skill and influence is not likely to meet with acceptance.
Middlemen, or dealers in securities, per form a real service. Some description of the manner of performing this service will ap pear as our discussion develops. A corpora tion engaged in the special business which it was organized to carry on does not have the facilities, to say nothing of the special knowl edge and ability, to engage in the business ordinarily carried on by the dealer in securi ties. A given corporation ordinarily demands new capital only at considerable intervals. It cannot maintain a permanent organiza tion to satisfy these occasional demands.
Dealers in securities make a business of doing for many corporations what, for any one of them, though probably their most important affair, is one that ordinarily de mands attention only at infrequent and ir regular intervals. They perform services of two kinds. They do the actual work of in ducing the capitalist to make his commit ment in the particular enterprise, and they assume the risk of success in performing this service. Generally speaking, corporations do not meet with success in new financing unless they can and do command both serv ices. People who are willing to act as bro kers for a corporation in selling its' securities on commission, and without assuming the risk of the market, naturally will not sell if they find selling so difficult as to be un profitable. Ordinarily corporations resort to dealers of that character only when they fail to find some dealer who will assume the risk. Generally only small corporations at tempt to raise funds in that way, and then the attempt usually results in disappoint ment.