The High-Stakes Game of AI Startup Funding: Is ‘Kingmaking’ the New Normal?
In the fast-paced world of technology startups, a seismic shift in venture capital strategy is underway. Gone are the days of patiently nurturing companies through multiple funding rounds. Today, top-tier venture capital firms are employing an aggressive, almost gladiatorial approach, often dubbed ‘kingmaking,’ to anoint early winners in burgeoning AI categories. This strategy involves showering a single, promising startup with massive funding at its nascent stages, aiming to create an insurmountable advantage that effectively sidelines competitors and establishes market dominance before the dust even settles.
The Rise of the Early Bet: DualEntry’s $90 Million Play
One of the most striking recent examples of this phenomenon is the colossal $90 million Series A funding round secured by DualEntry, an AI-powered enterprise resource planning (ERP) startup. Led by heavyweights Lightspeed and Khosla Ventures, this infusion of capital values the one-year-old company at an astounding $415 million. DualEntry’s ambition is bold: to disrupt the legacy ERP market, currently dominated by giants like Oracle NetSuite, by offering automated routine tasks and predictive business insights powered by artificial intelligence. Such a substantial funding round, especially for a company so young, typically signals explosive revenue growth. However, whispers from the investment community suggest a different narrative.
According to a VC who ultimately declined to invest in DualEntry, the company’s annual recurring revenue (ARR) was reportedly around $400,000 when the deal was under review in August. While DualEntry’s co-founder, Santiago Nestares, has refuted this specific figure, stating that revenue at closing was "considerably higher," the stark contrast between reported revenue and valuation raises eyebrows. This disconnect highlights a growing trend: VCs are increasingly willing to back startups with valuations that far outstrip their current financial performance, betting heavily on future potential.
‘Kingmaking’: A Strategic Power Play
This ‘kingmaking’ approach is not entirely new to the venture capital landscape. Historically, VCs have always identified a competitive category and backed what they believed would be the eventual winner. However, the crucial difference now, as noted by Jeremy Kaufmann, a partner at Scale Venture Partners, is the dramatic acceleration of this process. "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," Kaufmann explains.
The underlying principle is simple: equip one startup with so much capital that it becomes practically impossible for rivals to compete. This financial firepower allows the chosen ‘king’ to scale rapidly, invest heavily in product development and marketing, and build a formidable brand presence, thereby creating the perception, and often the reality, of market leadership. It’s a strategy that leverages the ‘power law’ effect – the principle that a small number of investments will generate the vast majority of returns in a venture portfolio.
Echoes of the Past, Accelerated for Today
While the term ‘kingmaking’ is contemporary, the concept of using capital as a weapon has deep roots in venture history. David Peterson, partner at Angular Ventures, draws a parallel to the ‘capital as a weapon’ tactics seen in the 2010s. He points to the ridesharing wars between Uber and Lyft, where massive capital injections were deployed. However, Peterson emphasizes a key distinction: "the capital weaponization for the ridesharing companies didn’t begin until they reached their Series C or D rounds." In today’s AI-driven market, these aggressive funding rounds are occurring at Series A and B stages, signifying a much earlier commitment.
The AI ERP sector is just one battleground where this accelerated funding race is playing out. Competitors to DualEntry are also experiencing rapid, significant investment. Rillet, another AI ERP startup, secured a $70 million Series B round led by a16z and Iconiq, merely two months after closing a $25 million Series A led by Sequoia. Similarly, Campfire AI has also executed back-to-back funding rounds, announcing a $65 million Series B in October, following a $35 million Series A just a couple of months prior, led by Accel.
Jaya Gupta, a partner at Foundation Capital, highlighted this pattern on X (formerly Twitter), observing that "Series Bs happen 27-60 days after Series As regularly" in certain AI categories. Beyond AI ERPs, she notes this trend in areas like IT service management and SOC compliance, where startups are raising substantial funds in quick succession, often without significant new data or growth milestones between rounds.
The Double-Edged Sword of Early, Massive Funding
While some startups, like Cursor and Lovable, have indeed demonstrated breakneck growth between their rapid funding rounds, many VCs acknowledge that this isn’t universally the case. Several investors have indicated to TechCrunch that even with multiple rounds in 2025, some AI ERPs and similar startups are still generating ARRs in the single-digit millions. This raises questions about the sustainability and long-term viability of such heavily valued, early-stage companies.
Despite these concerns, there are compelling reasons for VCs to employ the kingmaking strategy, even with modest initial burn rates. A well-funded startup, regardless of its current revenue, is often perceived as a more stable and reliable partner by large enterprise clients. For major software purchases, these businesses prefer vendors that appear to have the financial backing to ensure long-term support and development. This perception can be a significant competitive advantage, as seen with the legal AI startup Harvey, which attracted major law firms by projecting an image of robust financial stability.
However, history serves as a stark reminder that massive capitalization is no guarantee of success. The cautionary tales of logistics company Convoy and the bankruptcy reorganization of scooter company Bird underscore the inherent risks. Yet, these past failures do not seem to deter major VC firms. Their rationale is often rooted in identifying categories where AI presents a transformative opportunity. By investing early and aggressively, they aim to secure a dominant position, drawing lessons from the 2010s where early investors in companies like Uber reaped astronomical returns, proving that sometimes, overpaying early can be the smartest long-term decision.
The Future of AI Investment: A High-Octane Race
The kingmaking playbook represents a significant evolution in venture capital. It’s a high-stakes gamble, driven by the immense potential of AI and the fear of missing out on the next transformative company. As VCs deploy larger sums at earlier stages, the pressure on these AI startups to deliver on their ambitious valuations intensifies. The coming years will reveal whether this aggressive ‘kingmaking’ strategy will lead to a new era of dominant AI enterprises or become another chapter in the annals of cautionary tales in the ever-evolving tech landscape.
This aggressive funding approach, characterized by rapid, multi-million dollar rounds even for companies with modest revenue, is reshaping the competitive dynamics in the AI startup ecosystem. The aim is clear: to create a financial moat that protects their chosen champion from the fierce competition, ensuring they have the resources to out-innovate, out-market, and ultimately, out-last their rivals. The era of the early, well-capitalized AI ‘king’ has begun.