This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
One of the most common errors - and also one of the most dangerous - in organizing a new corporation is to start it off with insufficient capital to carry it through to success. The result is that the new corporation perhaps makes a fine start, gives promise of yielding large profits, and then suddenly threatens to collapse because the supply of cash has been exhausted. Credit is not readily available for most new corporations. The organizers turn hopefully to the natural recourse of selling more stock, and usually find themselves confronted by a blind wall of skepticism. It is a curious fact that an entirely new project, which exists only as an idea and has not yet been troubled by any of the harsh vicissitudes of business existence, appeals strongly to the imagination and is generally able to command capital with comparative ease; whereas exactly the same project six months or a year later, when substantial progress has been made and its profitableness has been in part demonstrated, is no longer appealing and raises new capital with difficulty. The reason is no doubt to be found in the fact that the owner of capital in the second case looks at the project at close range, sees it in its prosaic realization and can hardly conceive it as a great money maker. In the first place his imagination was left untrammeled. Promoters are insistent, therefore, on one piece of advice in which they all agree: in organizing new enterprise, raise at the outset all the capital required to bring it to success.