Seed-strapping: A New Approach to Startup Funding
In a challenging venture capital landscape, a new strategy is emerging as a viable path for technology startups: “seed-strapping.” This approach involves raising a single round of funding and then prioritizing sustainable, profitable growth. Fueled by the rise of artificial intelligence and a shift in founder priorities, seed-strapping is gaining traction, particularly in Southeast Asia.
The Rise of Seed-strapping
Historically, the venture capital model has dominated tech startup financing, with the expectation of multiple funding rounds. However, the market downturn has forced founders to explore alternatives. Seed-strapping offers a “Goldilocks version” where companies can receive an initial boost without the pressures of constant fundraising, according to Josh Payne, general partner of OpenSky Ventures.
The concept builds on the established practice of bootstrapping, where individuals use their own resources to build a business. Companies like Spanx, Craigslist, and GoPro famously bootstrapped for years before achieving significant success. Seed-strapping adapts this approach by incorporating a single round of seed funding to accelerate initial growth.
Advantages of Seed-strapping
Seed-strapping enables founders to secure funding while retaining greater control over their company. Wade Foster, co-founder and CEO of Zapier, seed-strapped their company and, after a seed round, used revenue to drive profitability and achieve significant annual recurring revenue. He noted that this model allows founders to focus on building sustainable, long-term success.
“For us, not raising more had nothing to do with the environment, and had everything to do with the fact that we were able to get profitable,” said Foster, adding that more capital would have created more complications.
Payne of StackCommerce echoed this sentiment, noting that seed-strapping offers the benefits of venture backing—validation, mentorship, and resources—without the dilution and loss of control.
AI and its Impact
The rise of artificial intelligence is also contributing to the appeal of seed-strapping, by helping founders do more with less. AI-powered tools allow startups to improve efficiency, automate tasks, and scale operations without relying on large teams, minimizing the need for extensive funding rounds.
“I think AI, in particular, is making it more possible, where these companies can use automation [and] tech to get a lot of leverage without having to go hire a bunch of people,” said Foster.
Seed-strapping in Southeast Asia
While the seed-strapping trend is evident in the U.S., it’s particularly noticeable in Southeast Asia. This is partly due to the region’s fragmented market, which comprises 11 different countries, each with unique cultures, languages, and regulations. This complexity makes it challenging to apply the “power law” principle typically used by venture capitalists, further incentivizing startups to explore alternative funding models.
Jx Lye, founder and CEO of Acme Technology, emphasized the importance of time and space to find product-market fit for startups.
“I think what most founders are also realizing is what you need is not just money, but time. You need time to explore … You need space. You can’t have someone breathing down your neck for updates [while you’re] trying to figure out your product market fit at the start,” said Lye.
A Changing Ethos
Beyond economic factors, there is a shift in the mindset of some founders, who are reassessing the benefits of venture capital funding. The pressure to grow rapidly, which often accompanies institutional investment, can sometimes undermine a startup’s long-term health.
“There’s a huge rethink by founders about whether they want to take [venture capital] money,” said Lye, who also noted that VC funding “is like basically setting fire to gasoline, but then you have to live up to that valuation.”
Industry experts such as Jeremy Tan, co-founder and partner of Tin Men Capital, also see some founders valuing lifestyle and sustainability over massive growth potential.
Seed-strapping offers a path for founders to build successful businesses on their terms, balancing funding, control, and the potential for profitability.
