'Seed-Strapped' AI Startups Are Refusing Millions— To Make Billions

Forbes

09-07-2025

Investors Chasing AI startups
Valuation, headcount, and total capital raised are the traditional markers of startup success. But what if that conventional wisdom is actually a relic of the SaaS era? AI startups that have asked that same question are now turning to a new, 'seed-strapping' funding strategy to become profitable, keep their stake in the company, and avoid the notorious dilution treadmill of venture capital. A story of a particular AI CEO, Pukar C. Halal of Craft Ventures-backed SecurityPal is what put this trend on my radar. And I'm seeing a pattern emerging in entrepreneurship that's worth exploring: in 2025, you can scale to profitability while incurring far fewer sunk costs, and this means entrepreneurs can retain ever-larger shares of their own companies—often to the disdain of their early investors.Instead of climbing the 'Series A-to-IPO' ladder, this new cohort of AI founders is raising one seed round—if any—sprinting to profitability, and basically skipping the traditional follow-on rounds venture capitalists depend on for valuation mark-ups and expanded stakes.To founders, a self-funding, cash-flow-positive company is the dream—more control, more equity, and the ability to fundraise on their own terms, if they so choose. But for many traditional venture investors, this is dead money with no new valuation mark-ups. As this seed-strapping trend gains momentum, AI startups may be the clearest indication yet that the old, growth-at-all-costs model is broken, and the balance of power may be shifting towards entrepreneurs.
Venture Math Has Flipped
Right now, venture capitalists are sitting on record amounts of unused capital, known as "dry powder," which has reached nearly $500 billion as of mid-2025. Yet IPO markets are just starting to thaw, while billion-dollar acquisitions—which were commonplace through 2021—have been scarce ever since rising interest rates and market uncertainty slowed deals in 2022. Without these exits, VCs can't return profits to their own investors and must rely on paper mark-ups—increased valuations from later funding rounds—to show success.This results in higher competition for fewer attractive deals. It also drives up entry prices, slows returns, and makes it harder for VC firms to raise future funds. But for seed-strappers, their strong financial position gives them the leverage to set deal terms in their favor.With VCs vying for a shrinking pool of standout opportunities, founders can choose the most founder-friendly investors and auction scarce equity to the highest bid term sheet. This creates higher valuations, minimizes dilutions, and allows the company to set protective provisions in place that preserve equity and control. And, with no public-market deadline looming, founders can focus on building durable cash flow instead of chasing vanity metrics for Wall Street.Nowhere is this supply-demand mismatch clearer than in AI, where falling compute costs and open-source models let teams reach profitability on a shoestring.
Why AI Economics Have Changed
It's never been cheaper to build a profitable AI business. Cloud computing costs, particularly GPU prices essential for AI training, have been plummeting. At the same time, powerful open-source AI models like Meta's Llama have drastically lowered entry barriers, allowing lean, disciplined teams to deliver market-ready products rapidly.This increased efficiency means many AI companies can now achieve meaningful revenue well before even reaching what used to be considered Series A territory. This fundamentally changes venture economics. Lower costs and faster paths to profitability grant entrepreneurs unprecedented leverage, allowing them to dictate deal terms on their own timelines—or reject outside funding altogether.
A New Cohort of AI Entrepreneurs
Here are a few companies that have embraced seed-strapping and found skyrocketing success along the way:After raising $21 million Series A from Craft Ventures, SecurityPal AI built a hybrid AI platform that pairs LLM agents with a team of 300 forward deploy analysts at its 24/7 RLFH command center in Kathmandu, aka 'Silicon Peaks.' Think Surge AI but for the fast-growing Security Assurance market at the intersection of GRC, cybersecurity, and revenue. What once took weeks now takes hours with SecurityPal. The company quickly became profitable, landing six- and seven-figure deals with Fortune 500s and top tech names including OpenAI, Grammarly, Airtable, and Snap.Since then, the founder hasn't raised another dollar despite, according to inside sources, fielding interest from over 100 firms. In an email from Pukar C. Hamal, SecurityPal AI's CEO, to somebody inquiring about investing, Hamal replied,'we're already profitable, and we're taking customers away from the Big Four every week. My focus is on scaling revenue right now, not growing headcount with venture capital or increasing our paper valuation.'SecurityPal AI's last valuation was $105 million, but, it appears Hamal shares the sentiment of quite a few AI founders these days: the only metric that matters is bottom-line.Hamal could not be reached for comment on this story.Surge AI, a bootstrapped data-labeling powerhouse, took seed-strapping one step further by skipping outside funding entirely. While heavily-funded rivals like Scale AI raised hundreds of millions in an effort to scale quickly, Surge AI grew organically and is now generating over $1 billion annually. Their platform tackles the bottleneck of quality, human-labeled data for LLM training, leveraging a global crowd-workforce platform to deliver premium RLHF datasets to customers such as Anthropic and OpenAI.BrightAI, a company that bolts AI-powered edge modules onto factory equipment, bootstrapped itself to $80 million in annual revenue before accepting a single outside investment. When Bright AI's founders did raise a meager $15 million, it wasn't because they needed to. It was optional R&D money to test new form factors while keeping full control of the business. They kept all of their board seats and routinely turn down nine-figure term sheets from growth funds.AI startups like these are leading the charge when it comes to rejecting the blitzscale model and shifting power back to entrepreneurs. However, investors don't share the same enthusiasm.
Why Investors Are Annoyed—And Founders Don't Mind
Investors accustomed to frequent fundraising rounds and rapidly increasing valuations find seed-strappers frustrating because it chips away at the industry's core sales pitch: raise aggressively and then raise again. Without further fundraising, investors can't increase valuations on paper, nor can they easily exit their investments. For venture firms whose performance metrics depend heavily on these mark-ups, seed-strappers represent a wrench in the traditional venture machine, and investors are taking losses as a result.Yet founders don't seem troubled by their investors' impatience. This is likely due to the fact that reducing their reliance on venture capital means founders now have the freedom to focus on scaling their company, rather than chasing fundraising cycles. Staying lean allows them to control their destiny and maintain ownership and strategic flexibility without external pressure and unnecessary oversight.
What This Means for Entrepreneurs and InvestorsFor aspiring entrepreneurs, seed-strapping represents a path of greater autonomy, lower risk, and a higher financial upside. It challenges the assumption that startups must continuously raise capital to succeed. Instead, founders can leverage capital-efficient technologies to organically build profitable businesses early on, thereby maintaining control and maximizing personal equity. In this new playbook, customer revenue is becoming the cheapest form of capital.For investors and those interested in venture finance, seed-strapping raises fundamental questions about the venture capital model itself. As the IPO window narrows and M&A appetites become more selective, funds can no longer rely on follow-on rounds for paper mark-ups or quick exits. Instead, the game is shifting towards underwriting genuine cash-flow durability to an 'earn more, own more' model that favors profitability over valuation.As investors, entrepreneurs, and observers grapple with the shifting landscape, one thing is clear: this is a return to financial fundamentals, signaling a future where profitability is the hallmark of a successful startup.