The Entrepreneurial Revolution in the AI Era: How the Seed-Strapping Model Disrupts Traditional Financing Thinking
Why it is best suited for AI-native companiesAuthor: Henry Shi
Compiled by: Random Squad
Introduction to the Squad
Henry Shi is the Co-founder and COO of Super.com (formerly Snapcommerce), successfully leading the company to achieve an annual revenue of $150 million.
Recently, after in-depth discussions with over 100 founders, Henry summarized four early-stage financing models and provided detailed analyses based on solid data, which he believes will open new perspectives for you. Enjoy!
Henry Shi recently exited his startup, which achieved an annual revenue of $150 million and raised $200 million. He discovered a shocking fact: 90% of founders fundamentally build their companies the wrong way.
For decades, entrepreneurs have been trapped in a false binary choice: either bootstrap (which means struggling for years) or raise funds (which means potentially giving up control). But in 2025, AI changed everything. Henry Shi witnessed a revolution in company creation models, with the smartest founders employing an emerging model that is rarely mentioned.
Henry communicated with over 100 founders and learned from outstanding founders on the Lean AI leaderboard. Based on this, he summarized four methods for creating companies and raising funds, along with his own recommendations.
1. Traditional Financing: The Way That Causes Most Founders to Fail
Model 1: Bootstrapping
Founders bear all the costs themselves, maxing out credit cards and draining savings accounts, but they can retain 100% ownership. In this model, 90% of startups fail within the first three years, and the failure rate of bootstrapped companies is higher compared to those that accept other financing methods.
8 out of 10 bootstrapped companies will fail within 18 months due to funding constraints. Over the years, entrepreneurs often face personal financial deficits and cannot ensure the survival of their companies. Even successful bootstrapped companies typically take over five years to reach just six-figure revenues (and that’s while working 80 hours a week at below minimum wage).
Model 2: Venture Capital
Among the many VC-backed startups, 75% have never returned any profits to investors, and only 0.1% of companies can grow into unicorns that provide substantial returns to investors, as reported by TechCrunch.
However, in this model, all founders must operate as if they will be among that 0.1%. Founders must give up significant equity in each funding round: 20% in the seed round, 20% in Series A, 15-20% in Series B, and so on.
By Series C, founders typically own only 15% of the company, while 99% of companies never even reach this stage. A founder who creates a company valued at $50 million through VC often has much less personal wealth than a founder who creates a company valued at $10 million through bootstrapping.
Model 3: Boot-Scaling
Entrepreneurs first bootstrap until the company shows good growth momentum, then conduct a large-scale financing round, usually from private equity.
The advantage of this method is that it allows founders to retain ownership early on, but it also has many pitfalls: entrepreneurs must endure years of financial strain from bootstrapping. Later, they may face significant dilution of their equity (even up to 40-50%) in this large-scale financing, losing control of the company to private equity buyers who may also disrupt company culture.
This is a high-risk scenario: entrepreneurs exhaust personal funds and then bet everything on this "expansion," which has a 72% failure rate.
2. New Model: AI Makes It Possible
Model 4: Seed-Strapping (for AI-native companies)
For AI-native companies, this model is what excites Henry about the future of company creation. Entrepreneurs need to find investors who understand the "founders' desire to have control and ownership of their companies" and are willing to invest $100,000 to $1 million in seed funding.
From day one of establishing the company, the focus should be on revenue and profitability, disregarding vanity metrics that impress VCs. Entrepreneurs can achieve revenue growth without further diluting equity, allowing them to focus 100% on the business without worrying about running out of funds or constantly chasing VC money.
As AI disrupts the economic model of company creation, more and more founders are beginning to expand AI-based services and price based on outcomes—something that was previously unattainable. Now, entrepreneurs can quickly become profitable and elevate their ARR to seven or even eight figures.
In this model, entrepreneurs can gain stable income from profits without waiting for uncertain exit opportunities. Over time, they may even buy back equity, increasing their ownership stake. The biggest advantage of this model is the ability to achieve compound revenue growth early in the entrepreneurial journey.
For example:
With the same $100,000, compounding at a 30% growth rate for 5 years results in much higher returns compared to starting the same growth rate after two years.
$100,000 × 1.3^5 = $371,000,
$100,000 × 1.3^3 = $219,000,
which is a 70% higher income.
3. Why AI Makes Seed-Strapping the Ultimate Model
AI fundamentally disrupts the economic model of company creation:
According to YC, 25% of the codebase in YC W25 was almost entirely generated by AI.
More than 15 AI-native companies have increased their ARR to eight figures within 1-2 years with teams of fewer than 50 people.
As AI can generate complete functional systems, some software development costs are gradually approaching zero.
These changes bring numerous opportunities: independent individual entrepreneurs now have the chance to build companies worth $100 million. Henry knows some expert founders in vertical industries who, with the help of AI, have achieved ARR of $3-5 million with zero employees.
With AI's assistance, capital efficiency has significantly improved. A company that required $3 million to launch in 2020 can now be started with just $100,000. Moreover, the time for AI-native companies to enter the market has drastically reduced from months or even years to just weeks.
Compared to traditional SaaS companies, the average contract value (ACV) for AI-related services is much higher—because AI-based services can be priced based on outcomes rather than per seat. These services can also take up a portion of the company's budget that is several times higher than the software budget.
Achieving profitability has become unprecedentedly easy. Historically, salaries were the largest expense for startups, consuming 70-80% of funds. However, AI-native companies can operate normally even with very few or no employees, achieving over 80% profit margins from day one without spending years burning cash to build large teams.
Finally, adopting the Seed-Strapping model allows for continued flexibility and multiple options later, such as generating cash flow, selling the company, or raising VC funds, with almost no obvious downsides.
4. Intuitive Comparison of the Four Models
Henry will analyze the performance of these models based on metrics that truly matter to founders and investors.
- Revenue Growth + Financing Trajectory
The Seed-Strapping model combines the advantages of two models: it has initial funding that allows founders to freely advance their plans without worrying about running out of funds, and it does not require frequent fundraising. Compared to pure bootstrapping, it can achieve faster growth while maintaining a sustainable economic model.
- Founder Equity Dilution and Control
The Seed-Strapping model is the only one that allows founders to potentially increase their ownership stake over time through continuous equity buybacks. Entrepreneurs can leverage investment for funding support without falling into the endless equity dilution trap typical of VC models. In this model, entrepreneurs can firmly grasp the strategic control of company development, achieving a perfect balance between ownership and leverage.
- Founder Liquidity (Money in Pocket)
The Seed-Strapping model is the only one that consistently prioritizes putting money into the founders' pockets, even in the early stages of entrepreneurship. While other founders spend years hoping for a unicorn exit that may never materialize, those using the Seed-Strapping model have accumulated substantial personal wealth year by year through profit distribution. This is a form of financial freedom that does not require selling the company or relying on an IPO.
- Investor Returns and Liquidity
The Seed-Strapping model creates a win-win situation between founders and investors that is hard to achieve with other models. Investors do not have to wait ten years for uncertain illiquid returns; instead, they can receive early and continuous liquidity returns. The stability of these returns means that investors will support sustainable growth for the business rather than pushing for premature exits or unnecessary fundraising (their interests align with those of the founders).
5. Summary of the Four Models:
6. Psychological Aspects
Beyond the numbers, there are also psychological differences:
Bootstrapped founders often feel trapped by their "success," creating jobs they cannot escape from.
VC-backed founders experience the most pressure, constantly pursuing growth while worrying about running out of funds.
Entrepreneurs using the boot-scaling model describe it as riding a "roller coaster," first struggling through early difficulties and then facing pressure to prove themselves to investors.
Founders using the Seed-Strapping model report the highest levels of satisfaction, freedom, and control, while also maintaining flexibility and having multiple options later (such as generating cash flow, selling the company, or raising VC funds).
7. The Path Forward for AI-Native Companies
For entrepreneurs in AI-native companies, the "Seed-Strapping" model offers an ideal balance:
- Sufficient funding to effectively utilize AI tools.
- Minimal or no equity dilution, preserving founders' ownership of the company.
- The ability to quickly achieve personal profitability.
- The capability to realize the compounding effect of growth without the exhausting chase typical of VC models.
- As barriers to scaling diminish, the opportunity to build a "one-person billion-dollar company."
- Flexibility with multiple options later (such as generating cash flow, selling the company, or raising VC funds).
