VCs Crown AI Winners Early with ‘Kingmaking’ Strategy
▼ Summary
– DualEntry, an AI ERP startup, raised a $90 million Series A at a $415 million valuation, aiming to replace legacy software like Oracle NetSuite.
– Despite the large funding, a VC claimed its annual recurring revenue was only around $400,000 in August, a figure the co-founder disputes.
– The investment exemplifies “kingmaking,” a strategy where top VCs deploy massive capital early to create a market-dominant frontrunner.
– This pattern of rapid, successive funding rounds is occurring in several AI application categories, like AI ERP, often with little new financial data between rounds.
– While well-funded startups gain credibility with enterprise buyers, history shows massive capitalization does not guarantee success, as seen with failures like Convoy and Bird.
Securing a massive funding round early in a company’s life is becoming a defining strategy for venture capital firms, particularly in the competitive world of artificial intelligence. This approach, known as “kingmaking,” involves deploying overwhelming capital into a single startup to create an insurmountable advantage and the perception of market leadership, often long before traditional metrics like revenue would justify such a bet.
Consider the case of DualEntry, an AI enterprise resource planning startup. In early October, the one-year-old company announced a $90 million Series A round, led by prestigious firms Lightspeed and Khosla Ventures, which valued the business at $415 million. The startup aims to displace legacy systems like Oracle NetSuite with software that automates tasks and offers predictive insights. While such a substantial investment typically signals explosive growth, one venture capitalist who passed on the deal told TechCrunch that DualEntry’s annual recurring revenue was only around $400,000 as recently as August. The company’s co-founder, Santiago Nestares, disputes that figure, stating revenue at the deal’s close was “considerably higher.” Regardless, the extremely handsome valuation relative to revenue highlights a shifting investment pattern.
This tactic of anointing a winner through sheer financial force is not novel, but its timing has accelerated dramatically. “Venture capitalists have always evaluated a set of competitors and then made a bet on who they think the winner is going to be in a category. What’s different is that it’s happening much earlier,” explained Jeremy Kaufmann, a partner at Scale Venture Partners. This contrasts sharply with the previous investment cycle. David Peterson, a partner at Angular Ventures, noted, “The 2010s version of this was just called ‘capital as a weapon.'” He pointed to Uber and Lyft as classic examples, where massive funding became a strategic tool, but not until their Series C or D stages.
The competitive pressure is clear in the AI ERP sector. DualEntry’s rivals, Rillet and Campfire, have also secured rapid, successive funding. Rillet raised a $70 million Series B just two months after a $25 million Series A. Similarly, Campfire AI announced a $65 million Series B merely a couple of months following a $35 million Series A. This pattern of back-to-back funding rounds with little new operational data between them is spreading across several AI application categories, from IT service management to security compliance.
While some startups demonstrate rapid growth between these tightly spaced rounds, several investors confide that this is not universal. Many AI ERP and other category startups that raised multiple rounds in 2025 still report annual revenues in the single-digit millions. Despite this, there is logic behind the kingmaking strategy. A well-capitalized startup is often viewed as more stable and reliable by large enterprise customers, making it the preferred vendor for major software purchases. This perception helped legal AI startup Harvey attract large law firm clients.
Of course, a massive war chest is no guarantee of victory. History is littered with heavily funded failures, from the logistics company Convoy to the bankruptcy restructuring of scooter provider Bird. Yet, these precedents do not deter major venture firms. They are driven to identify promising AI categories and place their bets aggressively at the outset. As Peterson summarized, “Everybody has fully internalized the lesson of the power law. In the 2010s, companies could grow faster and be bigger than almost anybody had realized. You couldn’t have overpaid if you were an early Uber investor.” The race to crown a king is now a sprint, not a marathon.
(Source: TechCrunch)
