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Guest commentary:  Yesterday, Marcelo Calbucci published a challenge to Seattle VCs here on GeekWire. Marcelo argues that seed-stage funding in Seattle is deficient, and challenges Seattle-area VCs to fund 100 seed-stage startups in the next 24 months.

That would be a great outcome, but it’s the entrepreneurs, rather than the VCs, who need to be stepping up to make it happen.

According to Marcelo, (1) seed-stage investments in Seattle have happened at a low rate; (2) investors say this is because they aren’t seeing investment-worthy propositions ($100 million at exit); (3) therefore, investors are placing their money outside of the Seattle area.

From this, Marcelo concludes that (4) the lack of investment-worthy proposals here in Seattle is somehow the fault of the investors.

Jonathan M. Smith, my doctoral adviser, tells his students: “When you read something, always look for the TAMH.” Every year, some dutiful doctoral student comes back with: “What’s a TAMH?” Smith replies: “Then A Miracle Happens.”

This is the point where the argument makes a leap that isn’t substantiated. Marcelo’s step 4 is the TAMH.

Jonathan Shapiro

Ten years ago, Seattle had one of the strongest boutique iBank ecosystems in the country. Enough so that people (including my company) came here seeking investment. That ecosystem shrank during the dot-bomb years, but people continue to look to this region as a source of funds.

As a result, those people now compete with Seattle-area entrepreneurs for funding. That’s a good thing. It promotes earlier infant mortality for weak ideas, leaving more capital available for viable propositions.

Seattle-based sources of funds exist. If people outside the Seattle area are putting forward more compelling propositions than we are, the investors are doing the right thing by sending them the money.

What we need to do as entrepreneurs is to step up, accept that competition, and produce investment-worthy propositions of our own.

For better or worse, “fundable” doesn’t just mean “it will make money.” It also means “big enough to be worth the investor’s time.”

Think about your personal investment portfolio for a moment.

Assuming you work at it, you have just about enough attention to manage 20-25 positions actively. The same holds for the VC.

If five VCs working together place 125 investments against a $300 million pool (which would be a lot of investments for a pool that size), the average placement needs to be $2.4 million. A more realistic number of positions for that $300 million fund would put the investment level in the $3 million to $7 million range, which is where first-round VC investments have been traditionally.

The VC may love your smaller-scale idea, but they are answerable to investors just like you, and they can only manage so many positions. It doesn’t mean they are gun-shy. It means they are doing the math and doing their jobs.

Marcelo is right on one point. It wouldn’t hurt if Seattle area VCs, collectively, take some modest steps to become a bit more visible to first-time entrepreneurs.

Knowing that the money exists might help to bring proposals out of the woodwork. At worst, we’ll all enjoy some wine and cheese. Hmm. This being Seattle, perhaps pizza and beer.

But taken overall, I think Marcelo’s challenge is directed to the wrong people. Here’s my counter challenge:

A Challenge to Seattle Entrepreneurs: Produce 100 Investment-Worthy Propositions in 24 Months

I’d say more, but it’s time to stop. In any case, I need to get back to work reducing that to 99.

Jonathan Shapiro is a Seattle area software entrepreneur and managing director of The EROS Group. He received a Ph.D. from the University of Pennsylvania in 1999.

Previously on GeekWire: A challenge to Seattle VCs: Back 100 seed-stage startups in 24 months

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