AI startups embrace profitability over traditional funding routes

In recent years, AI startups have shifted towards a funding strategy called 'seed-strapping' that focuses on achieving profitability with minimal or no external funding. This trend is particularly notable among new AI entrepreneurs as of 2025, where various companies have successfully raised a seed round or none at all and prioritized rapid profitability over traditional venture capital funding pathways. The rise of this approach can be attributed to the significant decrease in costs associated with cloud computing and GPU resources, which are essential for the training of AI models. Entrepreneurs now have the ability to leverage these lower costs to scale their businesses without incurring substantial sunk costs. The emergence of this funding strategy has disrupted the traditional venture capital model that has long relied on a dynamic of frequent fundraising and increasing valuations. For instance, Pukar C. Halal, the CEO of SecurityPal, emphasizes a focus on bottom-line profitability rather than growth through additional funding rounds. Despite having raised $21 million in a Series A round, he expresses the sentiment shared by many AI founders that retaining a substantial equity stake and prioritizing profits over growth metrics is essential for their businesses. As a result, the ‘dilution treadmill’ has become a pressing concern for traditional investors who are accustomed to rapid returns through increased valuations. Moreover, it appears that the investors' frustration stems from a stark contrast between their expectations of ongoing financial returns through additional fundraising rounds and the entrepreneurs' focus on profitability without diluting their equity. Since seed-strapping allows startups to grow without regular cash infusions from venture capital, this trend offers entrepreneurs greater autonomy and fosters an environment where they can dictate the terms of their operations. Although this shift comes at a time when IPO markets are beginning to recover, the scarcity of billion-dollar acquisitions has created a challenging scenario for venture capitalists, as their success metrics depend heavily on visible returns to their investors. Without these exits, they face growing losses and must rely on paper mark-ups to portray success. Looking forward, the challenges posed by this changing landscape indicate a potential paradigm shift away from the growth-at-all-costs mentality within the startup ecosystem. This new focus on sustainable profit generation alters the power dynamics between entrepreneurs and investors. For aspiring founders, embracing the principles of seed-strapping presents a viable path not only to mitigate risks associated with continuous fundraising but also to maximize their financial upsides by retaining a larger share of their company. As these changes unfold, the old frameworks that once dominated the venture capital space may increasingly be called into question, highlighting the importance of profitability as a marker of success in the new age of startup economics.