To me, this just seems like a capital-efficient alternative to the founder increasing their salary that could be negotiated. I had no such perception that this was some “secret” thing, I assumed it happened since you can do whatever you want if the investors and founders agree that it makes sense.
But for software, and my impression is that it is even more like this in most other industries, a huge amount of tech ventures never receive any funding. Many of these are never even properly incorporated and may not be included in datasets. Then, for the ones that do raise seed money, usually with SAFEs, 50-60% of them would fail before raising a significant priced round (series A).
The overall point being, there’s a lot of risk between starting a company and raising a sizeable priced round for most people.
My friends in software startups balk at the sheer burn rate and funding rounds at mine. $100mm for a Series A is unheard of in software.
Thank you Thiel for setting the bar so high (the famous, "you need $1billion in total capital to successfully pull off hardware startups" quote).
Peak 2020: https://www.wiz.io/blog/wiz-comes-out-of-stealth-with-100m-s...
I imagine other companies went through a similar scenario but failed before series A