4 Startup Funding Models in the Age of AI: How Founders Are Building Differently in 2025

In 2025, AI is reshaping startup funding. Founders now choose from four models: Bootstrapping, Venture Capital, Boot-Scaling, and Seed Strapping. Seed Strapping—raising one seed round and growing profitably—is rising due to AI's efficiency. This lean approach reduces risk, preserves equity, and supports faster, sustainable startup growth with smaller teams.

In 2025, startup funding is undergoing significant transformation, driven by advancements in artificial intelligence (AI), changing investor expectations, and the emergence of leaner, more efficient entrepreneurial models. Traditional funding approaches are now being re-evaluated as founders explore innovative strategies to build and scale ventures without the high risk and dilution associated with past practices.

One of the leading voices highlighting this shift is Henry Shi—technology entrepreneur, investor, and founder of Super.com. After scaling his company to over $150 million in annual revenue and raising over $200 million in venture capital, Shi now shares practical insights with the startup community. His recent work analyses the four major funding models shaping startups today, especially in the AI-native era.

Funding models in 2025: Evolving beyond the old binary

For decades, entrepreneurs have faced a limited choice: bootstrap and grow slowly with personal funds, or raise venture capital and give up ownership. Today, AI alters that equation.

Founders now have access to powerful generative tools that reduce operational costs, improve coding efficiency, and minimise reliance on large teams. This has led to the rise of alternative funding models, most notably Seed Strapping—a strategy gaining traction in a volatile economic environment.

Understanding seed strapping

Seed Strapping refers to the practice of raising a single round of seed funding and then growing the business profitably from that point onwards. Unlike traditional venture capital paths that involve multiple funding rounds and equity dilution, Seed Strapping focuses on sustainability, agility, and efficiency.

The approach has become increasingly viable thanks to AI, which enables solopreneurs and small founding teams to build high-impact products without large expenditures. Tools powered by AI facilitate faster product development, automation of customer service, and enhanced decision-making. This model proves particularly attractive to founders seeking to retain control and minimise external interference.

The four main startup funding models

Based on Henry Shi’s analysis—drawn from interviews with over 100 founders and insights from the Lean AI Leaderboard—startups today largely operate under one of four distinct models:

1. Bootstrapping: Founders use their personal funds to start and grow the company. While this method retains 100% ownership, it presents significant financial challenges. More than 80% of bootstrapped startups fail within 18 months due to cash flow issues. Even when successful, bootstrapped businesses typically take five years or more to generate six-figure incomes, often under heavy personal workload and financial stress.

2. Venture Capital: The traditional VC model offers early financial support but requires founders to give up equity at every stage. Typically, founders surrender 20% during the seed stage, another 20% in Series A, and 15–20% during Series B. By Series C, many founders hold less than 15% ownership. Despite media attention on unicorns, only 0.1% of VC-backed startups achieve billion-dollar exits. Most fail to return capital to investors, making this model high-risk and low-return for the majority.

3. Boot-Scaling: This hybrid model involves initial self-funding followed by a large funding round once traction is established. While founders retain early equity, they often lose significant ownership during the scale-up phase, particularly when dealing with private equity firms. This model presents a high-risk scenario—founders may sacrifice company culture and autonomy, and 72% of these scaling events fail.

4. Seed Strapping: This emerging model offers a more balanced alternative. By securing a single seed round and growing profitably thereafter, founders maintain ownership and independence. AI plays a central role, enabling startups to achieve efficiency, faster product-market fit, and lower burn rates. In 2025, Seed Strapping is becoming an increasingly attractive path for entrepreneurs.

The role of AI in startup funding innovation

Artificial intelligence is reshaping startup economics. In March 2025, a widely cited statistic from Y Combinator’s Demo Day revealed that 25% of startups had codebases that were 95% AI-generated. Smaller, AI-augmented teams are now capable of doing the work of larger organisations, enabling founders to grow companies faster and with fewer resources.

Frameworks such as MCP (Multimodal Chain of Thought Prompting by Anthropic) and A2A (Agent-to-Agent communication by Google) further enhance these capabilities. These models improve coordination between AI agents and contribute to revenue growth, product development, and customer management—functions that previously required extensive manpower and capital.

Founder insights and recommended resources

Henry Shi, a University of Waterloo alumnus and serial AI investor, continues to share valuable resources for founders navigating the changing funding landscape. His notable works include:

• Seed-Strapping vs Boot-Scaling in the AI Native Era
• Henry Shi’s AI Crash Course (available on GitHub)
• The Complete Guide to OKRs
• Lean AI Leaderboard

Shi's posts and insights, particularly those shared via LinkedIn, have become essential reading for entrepreneurs and solopreneurs interested in the future of startup scaling.

For those seeking deeper understanding, several newsletters and platforms are gaining attention for their focus on AI, venture capital, and startup strategies. These include:

• The VC Corner by Ruben Dominguez Ibar
• The Founders Corner by Chris Tottman
• Product Market Fit by Guillermo Flor
• a16z Speed Run by Andreessen Horowitz

Additionally, Tashi Dorjee from Australia offers an informative YouTube guide on Seed Strapping, and Latent Space (by Swyx and Alessio) presents a useful introduction to MCP.