Venture capitalists are deploying a “kingmaking” strategy to crown nascent AI winners

In early October, DualEntry, an enterprise resource planning (ERP) startup, announced a $90 million funding round led by Lightspeed and Khosla Ventures, valuing the one-year-old company at $415 million.

The company seeks to replace legacy software like Oracle NetSuite with its own offerings that can automate routine tasks and provide predictive insights. The massive funding round from top-tier venture capital firms indicated that the startup was likely to see explosive revenue growth.

However, one venture capitalist who declined the investment told TechCrunch that DualEntry’s annual recurring revenue (ARR) was only about $400,000 when he reviewed the deal in August. DualEntry co-founder Santiago Nestares denies this number. When asked about revenue when the deal closes, Nestaris said it was “much higher than that.”

However, a very good valuation compared to revenues is becoming an increasingly popular investment strategy among top-tier venture capital firms. This tactic is known as “kingmaking.”

This approach involves deploying massive funding into a single startup in a competitive category, with the goal of overpowering competitors by giving the chosen company such a large bank account advantage that it creates the appearance of market dominance.

Kingmaking is nothing new, but its timing has changed dramatically.

“Venture capitalists are always evaluating a group of competitors and then betting on who they think will win in a category,” said Jeremy Kaufman, a partner at Scale Venture Partners. “What’s different is that it happens much earlier.”

This is early aggression Finance contrasts with the recent investment cycle.

“The 2000s version was just called ‘capital as a weapon,’” said David Peterson, partner at Angular Ventures. He noted that the massive funding into Uber and Lyft was a prime example of this, but the capital weaponization of ride-sharing companies didn’t start until they reached Series C or D rounds.

As is the case with Uber vs. Lyft, investors in DualEntry rivals Rillet and Campfire are clearly quite excited to see their bets succeed with the help of significant capital. In early August, Rillet raised a $70 million Series B led by a16z and Iconiq, just two months after the company closed a $25 million Series A led by Sequoia.

Likewise, Campfire AI has received two consecutive funding rounds. In October, it secured a $65 million Series B, just two months after announcing a $35 million Series A round led by Accel.

AI ERP is just one of many categories of AI applications where startups are raising funding in rapid succession. “No new data between rounds. Series B occurs 27 to 60 days after series on a regular basis,” Jaya Gupta, partner at Foundation Capital, posted on X last month. Beyond AI ERP, she wrote that she sees this pattern in categories like IT service management and SOC compliance.

While some startups like Cursor or Lovable have grown at a rapid pace between their successive rounds, several venture capitalists told TechCrunch that this isn’t the case for everyone. AI ERPs and many other classes of startups that raised multiple rounds in 2025 still have ARRs in the multi-millions, these investors said.

Although not all VCs agree that kingmaking is a sound investment strategy, there are reasons why offering large amounts of capital can be beneficial even when a startup maintains a modest burn rate. For example, well-funded startups are viewed as more likely to survive by large institutional buyers, making them the preferred seller for large software purchases. Investors say this strategy has helped legal AI startup Harvey attract large law firm clients.

However, history shows that massive capitalization offers no guarantee of success, with notable failures, including logistics company Convoy and the bankruptcy reorganization of scooter company Bird.

But these precedents do not bother major venture capital firms. They prefer to bet on a category that seems like a good case for AI, and they prefer to invest early because, as Peterson puts it: “The lesson of the power law has been fully absorbed by everyone. In the 2000s, companies could grow faster and be bigger than almost anyone imagined. You couldn’t overpay if you were an early investor in Uber.”

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