vcs deploy ‘kingmaking’ strategy to crown ai winners in their infancy

DualEntry's Funding and the Rise of "Kingmaking" in AI

During the early days of October, DualEntry, a nascent AI-driven enterprise resource planning (ERP) startup, publicized a $90 million Series A funding round. This investment was spearheaded by Lightspeed and Khosla Ventures, resulting in a company valuation of $415 million, despite being only one year old.

Challenging Legacy Systems

The company’s objective is to supersede established software solutions, such as Oracle NetSuite, with a platform capable of automating repetitive processes and delivering predictive analytical insights. The substantial capital injection from prominent venture capital firms strongly suggests the startup is experiencing considerable revenue expansion.

Revenue Discrepancies

However, a venture capitalist who opted not to participate in the funding round revealed to TechCrunch that DualEntry’s annual recurring revenue (ARR) stood at approximately $400,000 as of August. Santiago Nestares, a co-founder of DualEntry, contested this figure.

When questioned regarding revenue figures following the deal’s completion, Nestares indicated that the actual amount was “considerably higher.”

The "Kingmaking" Strategy

Regardless, a notably high valuation in relation to revenue is becoming an increasingly prevalent investment tactic among leading VC firms. This strategy is commonly referred to as “kingmaking.”

This approach entails substantial funding being channeled into a single startup within a competitive market segment. The intention is to overwhelm competitors by providing the selected company with a financial advantage so substantial that it establishes a perception of market leadership.

A Shift in Timing

While kingmaking isn’t a novel concept, its timing has undergone a significant change.

“Venture capitalists have consistently assessed competing businesses and then committed to the one they believe will emerge as the victor in a given category. The difference now is that this is occurring much earlier,” explained Jeremy Kaufmann, a partner at Scale Venture Partners.

Contrast with Previous Cycles

This early, aggressive funding stands in contrast to investment patterns observed in the past.

“In the 2010s, this was simply termed ‘capital as a weapon,’” stated David Peterson, a partner at Angular Ventures. He highlighted the significant funding provided to Uber and Lyft as a prime example, but noted that this weaponization of capital didn’t commence until their Series C or D funding rounds.

Competitive Funding Landscape

Similar to the Uber vs. Lyft scenario, investors in DualEntry’s rivals, Rillet and Campfire, are equally keen to see their investments flourish with the aid of substantial capital. Rillet secured $70 million in Series B funding in early August, led by a16z and Iconiq, just two months after completing a $25 million Series A round led by Sequoia.

Campfire AI also experienced consecutive funding rounds. In October, the company obtained $65 million in Series B funding, shortly after announcing a $35 million Series A round led by Accel.

Rapid Funding in AI Applications

AI ERP is just one of several AI application categories witnessing startups securing funding in quick succession. “There’s no new data between rounds. Series Bs happen 27-60 days after Series As regularly,” Jaya Gupta, a partner at Foundation Capital, shared on X last month.

She added that this pattern is also observable in areas such as IT service management and SOC compliance.

ARR vs. Valuation

While some startups, like Cursor or Lovable, have reportedly demonstrated rapid growth between funding rounds, several VCs have indicated to TechCrunch that this isn’t universally the case. AI ERPs and other startups raising multiple rounds in 2025 often still have ARRs in the single-digit millions, according to these investors.

Benefits of Substantial Funding

Despite differing opinions among VCs regarding the soundness of kingmaking, there are potential benefits to providing significant capital, even with a moderate burn rate. For example, well-funded startups are often viewed as more stable by large enterprise buyers, making them the preferred choice for substantial software acquisitions. This strategy aided legal AI startup Harvey in attracting clients from major law firms, investors suggest.

Historical Precedents

However, history demonstrates that substantial capitalization doesn’t guarantee success, as evidenced by failures like the logistics company Convoy and the bankruptcy reorganisation of scooter company Bird.

VC Confidence

These precedents, however, do not deter major VC firms. They favor investing in categories that appear promising for AI and prefer to invest early, as Peterson articulated: “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.”