Entrepreneurship Revolution in the AI ​​Age: How the Seed-Strapping Model Subverts Traditional Financing Thinking

Author: Henry Shi

Compilation: Random Team

Team introduction

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

Recently, after in-depth exchanges with more than 100 founders, Henry summarized four early financing models of enterprises and analyzed them in combination with detailed data. I believe that it will open up new ideas for you. Enjoy!

Henry Shi recently withdrew from a startup with an annual revenue of $150 million and has raised $200 million. He discovered the amazing fact: 90% of founders set up companies in a fundamentally wrong way.

For decades, entrepreneurs have been trapped in a wrong binary choice: either Bootstrapp (meaning struggling for years) or financing (meaning likely to give up control). But in 2025, AI has changed everything. Henry Shi witnessed a revolution in corporate creation models, and the wisest founders are using an emerging model that is almost unmentioned.

Henry talked with more than 100 founders and learned from the outstanding founders on the Lean AI rankings. On this basis, he summarized four ways to create a company and raise funds for the company, and gave his own advice.

1. Traditional financing: a way to make most founders fail

Mode 1: Bootstrapping

The founder bears all the funds on his own, swipes his credit card and empties his savings account, but he can retain 100% ownership. 90% of startups under this model will fail within the first 3 years, and Bootstrapp's company failure rate will be higher than that of companies that accept other financing methods.

Eight of the 10 Bootstrapp companies will fail within 18 months due to funding restrictions. For many years, entrepreneurs' personal financial situations have continued to be deficits and there is no guarantee that the company will survive. Even successful Bootstrapp companies usually take more than 5 years to earn only six figures (and if they work 80 hours a week and have an hourly salary below the minimum wage).

Mode 2: Venture Capital

Among the many VC-backed startups, 75% never reward investors, and only 0.1% can grow into unicorn companies, like the success stories reported by TechCrunch (US Tech Media).

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

By round C, founders usually own only 15% of the company’s equity, and 99% never even reached this stage. A founder who creates a $50 million company through VC tends to have much less personal wealth than a founder who creates a $10 million company through Bootstrapp.

Mode 3: Boot - Scaling

Entrepreneurs start with Bootstrap until the company shows good momentum and then conduct a large round of financing, which usually comes from private equity.

The advantage of this approach is that it can retain ownership of the company in the early stages, but there are also many hidden dangers: entrepreneurs have to endure the financial difficulties brought by Bootstrapp for many years. After that, the equity will be greatly diluted (even to 40-50%) in this large-scale financing, lose control of the company, and be controlled by private equity buyers, and they may also destroy the company's culture.

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

2. New model: AI makes it possible

Mode 4: Seed-Strapping (for AI native enterprises)

For AI native companies, this model is exactly what makes Henry excited about the future of the company. Entrepreneurs need to find such investors—they understand the demands of “founders desire control and ownership of the company” and are willing to invest $100,000-1 million in seed rounds.

From the first day of the company's establishment, we should focus on revenue and profitability, and not care about the vanity indicators that can impress VCs. Entrepreneurs can achieve revenue growth without further diluting their equity, and they can focus 100% on their business without worrying about running out of funds or chasing VC funds all the time.

As AI disrupts the economic model of creating companies, more and more founders are starting to expand AI-based services and price on results – something that was impossible in the past, and now entrepreneurs are making quick profits and boosting ARR to seven or even eight digits.

Under this model, entrepreneurs can obtain stable returns from profits without waiting for uncertain exit opportunities. As time goes by, they may even repurchase their equity and increase their shareholding ratio. The biggest advantage of this model is that it can achieve compound revenue growth in the early stages of entrepreneurship.

For example:

The same is $100,000, compound interest growth starting today at a 30% annual growth rate for 5 years, compared with the fact that it only started compound interest growth at the same growth rate two years later, the former brings much higher returns.

$100,000 × 1.3^5 = $371,000,

$100,000 × 1.3^3 = $219,000,

That is, the income is 70% higher.

3. Why AI makes Seed-Strapping the Ultimate Mode

AI fundamentally subverts the economic model of creating a company:

• According to YC, 25% of the code base of YC W25 are almost entirely generated by AI.

• More than 15 AI native companies have improved ARR to 8-digit numbers in 1-2 years with a team of less than 50 people.

• As AI can generate complete functional systems, some software development costs are gradually approaching zero.

These changes have brought many opportunities: Nowadays, independent individual entrepreneurs also have the opportunity to build a $100 million company. Henry knows some experts and founders of vertical industries. With AI, they have an ARR of $3 million to $5 million with zero employees.

With the help of AI, capital efficiency has been significantly improved. A company that needs $3 million to start in 2020 is now available for $100,000. Moreover, the time for AI native companies to enter the market has been greatly shortened, from the past few months or even years to 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 on results rather than on seats. These services can also occupy a portion of the company's budget for wages, which is several times higher than the software budget.

It has also become unprecedentedly easy to achieve profitability. In the past, wages were the biggest expenses for startups, consuming 70-80% of their funds. But AI native companies can operate normally even if they have very few or even no employees, and can achieve a profit margin of more than 80% from the first day of starting a business, without spending many years burning money to form a huge team like in the past.

Finally, using the Seed-Strapping model will still maintain flexibility in the future and have multiple options, such as obtaining cash flow, selling companies, raising VCs, etc., which have almost no obvious disadvantages.

Intuitive comparison of four modes

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

1. Revenue growth + financing track

The Seed-Strapping model combines the advantages of two models: it has initial funds, allowing the founder to freely advance the plan without worrying about funding exhaustion and frequent financing. Compared with Bootstrapp alone, it can achieve faster growth while having a sustainable economic model.

2. Founder's equity dilution and control rights

The Seed-Strapping model is the only model in which founders have the potential to increase their own shareholding ratio over time by continuously buying back their shares. Entrepreneurs can not only obtain financial support through investment, but they will not fall into endless equity dilution diffusion like they do in the VC model. Under this model, entrepreneurs can firmly grasp the strategic control of company development and achieve a perfect balance between ownership and leverage.

3. Founder’s liquidity (money in pocket)

The Seed-Strapping model is the only model that always prioritizes funds into the founder’s pockets, even in the early stages of entrepreneurship. When other founders spent years of hard work and hoped for a unicorn-style exit that might never be achieved, entrepreneurs using Seed-Strapping have accumulated considerable personal wealth year by year through profit distribution. It is a financial freedom without selling a company or relying on listing.

4. Investor returns and liquidity

The Seed-Strapping model creates a win-win situation between founders and investors that is difficult to achieve in other models. Investors do not need to wait ten years to obtain uncertain illiquid returns, but to obtain early and sustained liquidity returns. This stability of returns means that investors will support the sustainable growth of the company rather than pushing the company out of prematurely or conduct unnecessary financing (their interest claims are truly consistent with the entrepreneur).

Five and four modes summary:

6. Psychological situation

In addition to numbers, there are also differences at the psychological level:

The founders of Bootstrapp often feel bound by their own "success", and they have created jobs that they cannot escape.

Founders supported by VC are under the pressure of the greatest, and they are constantly pursuing growth while worrying about running out of funds.

Entrepreneurs who adopt the Boot-scaling model described it as a "roller coaster", first experiencing difficult initial struggles, and then facing pressure to prove themselves to investors.

Seed-Strapping entrepreneurs say they have the highest satisfaction, freedom and control, while maintaining flexibility and have multiple options in the future (such as obtaining cash flow, selling companies, raising VCs, etc.).

7. The way forward for AI native enterprises

For entrepreneurs who are in AI native businesses, the “Seed-strapping” model provides an ideal balance:

• Have enough funds to effectively utilize AI tools.
• There is little or no equity dilution, thus retaining the founder's ownership of the company.
• Can quickly achieve personal profits.
• There is no need to be exhausted in VC mode, but it has the ability to achieve the compound interest effect of growth.
• As the obstacles to corporate scale expansion gradually disappear, there is a chance to build a "one-person billion-dollar company".
• Flexibility and have multiple options in the future (such as obtaining cash flow, selling companies, raising VCs, etc.).