In our opinion at Royal Street Ventures, the concept of “seedstrapping” has always been a good idea. Unfortunately, raising money just one time is often incompatible with traditional venture capital for a variety of reasons we will go into below. But in the evolving landscape of startup financing, everyone is talking about “seedstrapping.” So what is that all about?

What Is Seedstrapping?

Conceptually, “seedstrapping” involves raising a single round of funding, e.g. $1M, and then focusing on achieving break-even or profitability through early revenue growth rather than pursuing multiple funding rounds. As Josh Payne of OpenSky Ventures describes it, seedstrapping is the “Goldilocks version” between bootstrapping and venture capital, allowing founders to “raise a single round of funding at the pre-seed or seed stage and scale profitably from there.” Ideally, this approach gives founders the initial capital needed to build product, find market fit, and gain momentum while avoiding the fundraising treadmill that often accompanies the traditional VC path.

Why Is Seedstrapping Trending Now?

Several factors have contributed to the rise of seedstrapping in today’s startup ecosystem:

1. Changing VC Environment: One of our managing partners, Jeff Stowell, has been talking about this on social media. Recent data shows venture capital investment dropping precipitously over the last two years. And while total dollar amounts seem stable, large deals in the AI space are gobbling up those dollars, resulting in significantly fewer companies raising. With funding becoming more difficult to secure, founders are exploring alternative approaches.
2. Higher Interest Rates: The traditional wisdom is that rising interest rates have increased the cost of capital, pushing investors to focus more on profitability and capital efficiency rather than the “growth-at-all-costs” mentality that has traditionally dominated venture investing. But that’s not quite right. Rising interest rates provide a more compelling alternative to VC investments on a “risk-free” basis, thus removing capital from the VC market. Further, higher interest rates choke VC liquidity by making M&A more expensive for buyers, further depressing appetite for VC investments, limiting the capital funds have to deploy.
3. AI and Automation: Advancements in AI and automation tools are making it theoretically possible for startups to operate more efficiently with less capital. At Royal Street, we see this as a bit of a double-edged sword… but that’s another blog post! Wade Foster, CEO of Zapier, who happens to have seedstrapped his company says, “AI is making it possible for founders to do one round of funding and then get some profitability and grow pretty meaningfully.” The risk here is that the speed with which customers are trying AI and moving away from tools that don’t work can create a number of false positives for both entrepreneur and investor.
4. Desire for Founder Control: More entrepreneurs are prioritizing control over their companies and minimizing equity dilution, which traditional multi-round VC funding typically requires. Perhaps even more importantly, entrepreneurs in ecosystems where venture capital money flows less freely (like Kansas City, our home, or many other Midwestern areas), can use this strategy to stay off the train of needing more capital to simply survive.

So… Is Seedstrapping Right for Your Startup?

Seedstrapping represents a strategic path that may be particularly well-suited for:

• Founders who value control and long-term vision over rapid growth
• Businesses with clear paths to early revenue generation
• Companies leveraging AI and automation to operate efficiently
• Startups in markets where sustainable growth trumps market domination

As the funding landscape continues to evolve, seedstrapping can offer a compelling alternative that allows founders to benefit from initial investment while maintaining the independence and sustainability-focused mindset of bootstrapping. Further, investors can ALSO benefit from this strategy by de-risking portfolios across more deals (who needs follow-on!) and improving whole-fund economics. For most entrepreneurs in today’s market, this path may prove to be just right.