Lee Gascamp knows where the deep pockets are in Brenham, Tex., and he thought that with his ample connections in town, he would need just a few weeks to raise the capital for his start-up Bank of Brenham.
Those few weeks turned into seven months.
Mr. Gascamp and his fellow board members started out in January. But when the market took a plunge in March, they found themselves having to lobby hard for support from their shell-shocked local shareholder base.
Finally, in July, they had raised $4.3 million from 250 shareholders, and the bank opened its doors last month.
"It wasn't like the good old days where you told two friends and you suddenly had all your money," said Mr. Gascamp, Bank of Brenham's president and chief executive officer. "You had to hit the streets a little bit."
Jim Newsome, the president of Freedom Bank of Virginia, said that the tight capital situation he faced this year when seeking investors for his new bank was similar to his experience during the recession of the early 1990s when he founded the former Horizon Bank in Fairfax, Va.
This time he managed to raise $8 million in eight months from 394 investors, and he opened Vienna-based Freedom at the end of July. Doing so, he said, was "quite an experience and took longer than we had anticipated."
But Mr. Gascamp's and Mr. Newsome's stories at least have happy endings.
After years of seemingly unlimited availability, capital is drying up.
Michael Moran, an executive vice president at Capitol Bancorp in Lansing, Mich., said it became harder to raise capital in the summer of 1999 and that many banks have since been pushed to their limits trying to raise money.
"For a lot of organizations it has been almost impossible to get equity in the sector for the last two years," said Mr. Moran, a former investment banker.
Chris Hargrove, the president of Professional Bank Services, said that the capital shortage has become so acute that his Louisville, Ky., consulting company will no longer take on a bank in organization unless it has raised nearly all its capital. Three years ago Professional, which has offices nationwide, would help banks with just 25% of their capital gathered.
Consultants and investment bankers are blaming the capital shortage on investors - or the lack of them - not regulators, who have with a few exceptions used the same capital guidelines for the past five years.
Many would-be bank investors have their money tied up in the large number of new banks that were opened in small communities in the late 1990s.
"Most banks are looking to raise capital in their own backyard, and usually there is only one good story in each town," said John Donnelly, an investment banker at Donnelly, Penman, French, Haggarty & Co. in Detroit. "The movers and shakers are generally already behind one bank."
Making matters worse, those who do have money to invest are often turned off both by market volatility and by the lack of excitement for many community bank stocks.
"Looking back on the performance of other de novos, investors have not seen anything noteworthy," Mr. Hargrove said.
And just as investors have their money tied up in existing banks, so, too, the experienced organizers, with plenty of connections to capital sources, are already committed to start-ups. This leaves novices to find ever-more creative ways to drum up money.
"There aren't many good management teams left," Mr. Donnelly said. "Most teams have picked their spot and are settling."
When it comes right down to it, said Douglas Austin, president of Austin Financial Services Inc. in Toledo, "the glamour of starting a new bank just isn't there any more. There is not the excitement nowadays that there once was."
But for some banks, determination can outweigh investor doubt.
Thomas Austerman, the president of Bank of Evansville in Indiana, said that in the absence of buzz for community banking, he and other board members had to campaign to sell their bank. He said he had expected the capital-raising period to last seven months but that it took nearly twice that. In the end, though, the bank collected $11 million of capital from about 500 shareholders.
"It takes time," Mr. Austerman said. "You can't just talk to someone once. You have to meet with them three or four times."
Mr. Austin said that many bank organizers lack Mr. Austerman's patience and often pull the plug on their projects. Roughly 50% of banks that apply for charters never open, he said, and these misfires cost the average organizing group $150,000 to $450,000.
A company that many banks seeking capital turn to is $1.7 billion-asset Capitol Bancorp, which has helped found 27 subsidiary banks across the West and Midwest and plans to open two more by yearend. Capitol acquired all of these banks while they were still in organization by supplying half their start-up funding.
Mr. Moran, its executive vice president, said Capitol's popularity among start-ups has grown in recent months as capital from private investors has gotten scarce.
"We have been approached by a lot of groups now seeking us out because they have raised some of the capital and hit a roadblock," he said. "This has been a benefit to us because we can be extremely selective in those scenarios."
A few organizers are still breezing through the capital-raising experience - but most of these have ample experience with start-ups and rely on fewer and wealthier investors.
Jim Deitch, the chairman and chief executive of American Home Bank, said it took his board only 45 days to raise $12 million of capital from 125 investors for his Lancaster, Pa., bank. Six of the eight people on the board - including Mr. Deitch - had previous experience starting banks, and they drew on their former investor bases.
Despite such occasional success stories, Mr. Moran said he doubts that most organizers can make community bank stocks seem as alluring as before.
"Stocks are coming back up at larger banks and mid-caps, but the money has really not come back to the community banking level," he said. "And I am not sure when and if it will."