The Entrepreneurial Revolution in the AI Era: How the Seed-Strapping Model Disrupts Traditional Financing Thinking?

Author: Henry Shi

Compilation: Random Squad

Squad Introduction

Henry Shi is the Co-founder and COO of Super.com (formerly Snapcommerce), and he has successfully led the company to achieve an annual revenue of $150 million.

Recently, after in-depth conversations with more than 100 founders, Henry summarized four early-stage funding models for businesses and analyzed them with detailed data to help you find new ideas. Enjoy！

Henry Shi recently exited his startup, which had an annual revenue of 150 million dollars and had raised 200 million dollars. He discovered an astonishing fact: 90% of founders fundamentally build their companies in the wrong way.

For decades, entrepreneurs have been trapped in a false binary choice: either Bootstrap (which means struggling for years) or seek funding (which may mean giving up control). But in 2025, AI changed everything. Henry Shi witnessed a revolution in the company creation model, where the most astute founders are employing an emerging model that is hardly mentioned.

Henry communicated with over 100 founders and learned from the outstanding founders on the Lean AI leaderboard. Based on this, he summarized four methods for starting a company and raising funds for it, along with his own advice.

1. Traditional Financing: A method that is causing most founders to fail.

Mode 1: Bootstrapping

Founders bear all the funding themselves, maxing out credit cards and depleting savings accounts, but can retain 100% ownership. In this model, 90% of startups fail within the first 3 years, and compared to companies that accept other forms of financing, Bootstrapped companies have a higher failure rate.

8 out of 10 Bootstrapped companies will fail within 18 months due to funding constraints. For many years, entrepreneurs' personal financial situations may remain in deficit, and there is no guarantee that the company will survive. Even successful Bootstrapped companies usually require more than 5 years to achieve just six-figure revenue (and that's under the condition of working 80 hours a week at an hourly wage below minimum wage).

Mode 2: Venture Capital

Among the numerous startups backed by VCs, 75% of them have never returned profits to investors, and only 0.1% of the companies have been able to grow into unicorns, providing substantial returns to investors, like those success stories reported by TechCrunch.

However, in this model, all founders have to operate in a way that they will become that 0.1%. Founders have to give up a large amount of equity in every round of financing: 20% in the seed round, 20% in round A, 15 - 20% in round B, and so on.

By the C round, founders typically own only 15% of the company, and 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.

Mode 3: Boot - Scaling

Entrepreneurs first bootstrap until the company shows good growth momentum, and then conduct a round of large-scale financing, which usually comes from private equity.

The advantage of this method is that it allows the founders to retain ownership of the company in the early stages, but there are also many risks: entrepreneurs have to endure years of financial strain from bootstrapping. Later on, there will be significant equity dilution (even reaching 40 - 50%) in this large-scale financing, resulting in a loss of control over the company, which may be taken over by private equity buyers who could also disrupt the company culture.

This risk is very high: entrepreneurs exhaust their personal funds and then bet everything on this "expansion," which has a 72% failure rate.

2. New Model: AI Makes It Possible

Mode 4: Seed-Strapping (Applicable for AI Native Enterprises)

For AI-native companies, this model is precisely why Henry is so excited about the future created by the company. Entrepreneurs need to find such investors—who understand the founders' desire for control and ownership of the company—and are willing to invest seed funding of $100,000 - $1,000,000.

From the first day of the company's establishment, the focus should be on revenue and profitability, rather than on vanity metrics that impress VCs. Entrepreneurs who achieve revenue growth without further diluting equity can fully concentrate on the business without worrying about running out of funds or constantly chasing VC funding.

As AI disrupts the economic models of company creation, more and more founders are beginning to expand AI-based services and price them based on results — something that was previously impossible, and now entrepreneurs can quickly become profitable and elevate their ARR to seven or even eight figures.

In this model, entrepreneurs can obtain stable returns from profits without having to wait for uncertain exit opportunities. As time goes by, they may even repurchase equity to increase their ownership stake. The biggest advantage of this model is that it allows for compound growth of income even in the early stages of entrepreneurship.

For example:

With the same amount of $100,000, starting today with a compound annual growth rate of 30% for 5 years will yield much higher returns compared to starting the same growth rate of compound interest two years later.

100,000 USD × 1.3^5 = 371,000 USD,

$100,000 × 1.3^3 = $219,000,

That is an income increase of 70%.

3. Why AI Makes Seed-Strapping the Ultimate Model

AI fundamentally disrupts the economic model of starting a company:

According to YC, 25% of the codebase for YC W25 is almost entirely generated by AI.

More than 15 AI native companies have increased their ARR to eight figures within 1 to 2 years with teams of fewer than 50 people.

As AI is capable of generating complete functional systems, the cost of some software development is gradually approaching zero.

These changes have brought numerous opportunities: now, independent entrepreneurs also have the chance to build companies worth 100 million dollars. Henry knows some expert founders in vertical industries who, with the help of AI, have achieved an ARR of 3 to 5 million dollars with zero employees.

With the assistance of AI, capital efficiency has significantly improved. A company that required 3 million USD to start in 2020 can now be launched with just 100,000 USD. Moreover, the time for AI-native companies to enter the market has drastically reduced from several months or even years to just a few weeks.

Compared to traditional SaaS companies, the average contract value (ACV) of AI-related services is much higher—because AI-based services can be priced based on outcomes rather than by seat. These services can also take up a portion of the company's budget for salaries, which is several times higher than the software budget.

It's also easier than ever to make a profit. Historically, salaries have been a startup's biggest expense, consuming 70-80% of their capital. But AI-native companies can now operate with little to no employees, achieving profit margins of more than 80% from day one, without having to spend years burning money to build huge teams.

Finally, by adopting the Seed-Strapping model, flexibility can still be maintained in the future, with multiple options available, such as obtaining cash flow, selling the company, raising VC, etc., with almost no obvious drawbacks.

4. Intuitive comparison of the four modes

Henry will analyze the performance of these models in detail based on the metrics that are truly important to founders and investors.

1. Revenue Growth + Financing Trajectory

The Seed-Strapping model combines the advantages of two modes: it has initial capital that allows founders to freely advance their plans without worrying about running out of funds or having to frequently engage in financing. Compared to pure Bootstrapping, it enables faster growth while maintaining a sustainable economic model.

2. Founder Equity Dilution and Control

The Seed-Strapping model is the only model in which founders have the potential to continuously buy back equity, thereby increasing their ownership stake over time. Entrepreneurs can obtain financial support through investments without falling into the endless equity dilution dilemma as in the VC model. In this model, entrepreneurs can firmly grasp the strategic control of the company's development, achieving a perfect balance between ownership and leverage.

3. Founder liquidity (money in the pocket)

The Seed-Strapping model is the only one that always prioritizes putting funds into the founders' pockets, even in the early stages of a startup. While other founders spend years of effort hoping for a unicorn-style exit that may never materialize, entrepreneurs adopting the Seed-Strapping model have accumulated considerable 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.

4. Investor Returns and Liquidity

The Seed-Strapping model creates a win-win situation between founders and investors that is difficult for other models to achieve. Investors do not need to wait for ten years to obtain uncertain illiquid returns; instead, they can receive early and continuous liquidity returns. The stability of these returns means that investors will support the sustainable growth of the company, rather than pushing for premature exits or unnecessary financing (their interests align with those of the entrepreneurs).

V. Summary of Four Modes:

6. Psychological Aspects

In addition to the numbers, there are also psychological differences.

The founder of Bootstrapp often feels trapped by their own "success", as they have created some job positions from which they cannot escape.

Founders supported by VCs face the greatest pressure, constantly pursuing growth while also worrying about running out of funds.

Entrepreneurs who adopt the boot-scaling model describe it as riding a "roller coaster," first experiencing the early struggles and then facing the pressure to prove themselves to investors.

Entrepreneurs in the Seed-Strapping model claim to have the highest levels of satisfaction, freedom, and a sense of control, while also maintaining flexibility and having multiple options in the future (such as generating cash flow, selling the company, raising VC, etc.).

7. The Path Forward for AI Native Enterprises

For entrepreneurs in AI-native companies, the "Seed-strapping" model offers an ideal balance:

Have sufficient funds to effectively utilize AI tools.

Minimal or no equity dilution, thereby preserving the founders' ownership of the company.

Can quickly achieve personal profit.

There is no need to be exhausted in VC mode, yet have the ability to achieve the compounding effect of growth.

As the barriers to the expansion of enterprises gradually disappear, there is an opportunity to create a "one-person billion-dollar company."

Flexible and with multiple options in the future (such as generating cash flow, selling the company, raising VC, etc.).