One advantage of selling securities direct rather than through bankers and brokers is the belief commonly held by the purchasers that in this way they avoid contributing anything to the expense of making the sale. They argue to themselves that, if a brokerage firm were to dispose of a block of securities, it would require a commission of, say, 5 to 10% or more, whereas when the corporation itself, through its officers or direct representatives, disposes of its securities, no commission need be paid. It is, of course, obvious that there is a fallacy here, inasmuch as the effort and expense on the part of the corporation in conducting the sale is just as truly selling cost as would be a commission paid to bankers or brokers. As a matter of fact, the moment direct selling of its own securities by a corporation gets beyond a certain limited field, it becomes impracticable on account of its high cost. We have already seen that advertising and circularizing will not produce the right kind of inquiries for legitimate propositions except at excessive cost. Personal work on the part of officers or promoters of a corporation, who inquire among their friends and proceed from one man to another until they reach people with money to invest, is also slow and expensive. The idea is not impracticable when the amount of capital to be raised is comparatively small; but as the amount of capital increases, the difficulty and expense of this method become progressively greater.

It is, of course, impossible to say definitely how much capital can properly be raised in this manner. That will depend in part on the personal resources and acquaintanceships of the officers. Some years ago the Continental Rubber Company, which operates in the Congo, was organized as a close corporation by a small group of wealthy New York capitalists. It had a capital stock of $10,000,000, all of which was readily secured by personal solicitation. On the other hand, an inventor who is not in touch with business men may find it a matter of great difficulty to raise a few hundred dollars. We can perhaps form some approximate standard by considering the fact that banking and brokerage houses rarely care to consider undertaking the sale of securities of corporations which are not capitalized at $1,000,000 or more; also, they do not care to sell any block of securities amounting to less than $200,000 to $500,000 at the lowest. Blocks of securities of smaller amounts, therefore, cannot be sold ordinarily in any other manner than through the personal efforts of the promoters or managers of the corporation. Blocks of securities of larger amounts can generally, but not always, be sold more cheaply through banking and brokerage houses than through direct personal efforts.

That there are some exceptions to this last statement will at once be granted. For example, a large coal and lumber company has recently undertaken to sell $15,000,000 6% gold bonds and has sent out a number of high-grade salesmen who are being paid a 10% commission. The success of this attempt is not yet assured. The company has the advantage of having well-known business men at the head and of having large lists of dealers to whom they may go with an especially telling offer.

This general question of the relative expense of various methods of selling securities may be better considered after we have reviewed the methods of selling through dealers and through stock exchanges, as discussed in the following chapter.