Seed-strapping founders trade investor growth targets for a harder second raise

Seed-strapping starts from a view about incentives. The size of a check sets the size of the target that comes attached to it. Katherine Naylor Pullman, founder of Our Third Place, applied that reasoning to her own company. "If someone were to throw us millions of dollars, they would then want millions of members," she said ^[2]. "I firmly believe you cannot scale community by the millions." ^[3]

The second argument concerns price. Naylor Pullman and chief executive Ashley Preininger are raising from family, friends and members, and say a company that is not beholden to large investor returns can keep member costs lower ^[4]. "We actually don't feel like we need a huge influx of cash to do what we need to do," Preininger said ^[5]. Taking money from members also puts the people who pay membership costs among the company's backers ^[4].

Founders who spoke with Business Insider said they took this route by choice, citing the commitments, expectations and loss of control that come with more money ^[9]. Amid "all the fundraising doom and gloom," Caroline Lewis, managing partner at Nura Ventures, said "the rules are being rewritten." ^[10] Some of the gloom has a known cause: venture funding waned after the 2010s boom and the end of zero interest rates ^[7]. Carta's figures show where the 2022 seed cohort landed. Of US companies that raised a seed round that year, 41% raised nothing afterwards and another 21% kept raising without pursuing a Series A ^[19][20]. Those companies kept smaller headcounts than peers that went on to a Series A or later rounds ^[21].

Charles Hudson, managing partner at Precursor Ventures, sees a market split between companies that need heavy capital and promise large returns, and good ideas that may need less compute and labor and would return less ^[15]. "The biggest challenge is: how do you finance these companies through that little middle period?" he said ^[16]. "There's lots of money to get started. If you're building something big, there's lots of money to shoot for the moon." ^[17] For a company that raised a few million at seed and needs a few million more, there could be fewer investors at that size, according to Hudson. "Who's going to provide you that money?" ^[18]

Revenue is the seed-strapping answer to Hudson's question, and it has to arrive before the seed money runs out. "You can go back to business fundamentals of building a product that customers want to buy, then you can raise some capital and get some decent traction, and don't necessarily have to be beholden to the traditional venture train," Lewis said ^[11]. Costs have moved too. Founders now use AI agents for coding, accounting and marketing work that once required expensive labor ^[8].

These pressures have different causes. The funding drought is tied to the end of zero interest rates ^[7], a monetary condition. The lower cost of running a small team with AI agents ^[8] is tied to how the work gets done. I think the cost argument is the sturdier one for a founder deciding this quarter, because it holds whether or not the Series A market loosens.