In early October, AI startup DualEntry announced a significant $90 million Series A funding round led by Lightspeed and Khosla Ventures, achieving a valuation of $415 million just one year after its inception. The company aims to disrupt traditional ERP software, such as Oracle NetSuite, by automating routine tasks and delivering predictive insights, a move that has piqued the interest of leading venture capitalists eager to capitalize on its rapid revenue growth.
This latest injection of capital falls under a trend known as “kingmaking,” where venture capital firms pump large sums into a single startup within a competitive sector. This strategy aims to create a substantial financial advantage over competitors, ultimately projecting the chosen company as a market leader.
Although kingmaking is not a new concept, its execution has evolved significantly. “Venture capitalists have always evaluated competitors and made bets on potential winners. The difference now is the timing; they’re investing much earlier,” notes Jeremy Kaufmann, a partner at Scale Venture Partners.
This proactive funding method contrasts sharply with previous investment cycles, where significant funding—like that directed toward Uber and Lyft—occurred during later funding rounds. David Peterson from Angular Ventures recalls how capital was deployed as a competitive weapon predominantly in the later stages of these companies’ growth.
Investors in DualEntry’s rivals, Rillet and Campfire, are also heavily committed. Rillet recently secured a $70 million Series B round led by a16z and Iconiq, shortly following a $25 million Series A from Sequoia. Meanwhile, Campfire AI raised $65 million in its Series B, just months after receiving $35 million in Series A funding from Accel.
The surge in funding for AI ERP startups is part of a broader trend where rapid investments are prevalent across multiple AI application categories. As Jaya Gupta of Foundation Capital pointed out on X, Series B rounds are increasingly being completed within 27 to 60 days following Series A rounds.
While some venture capitalists question the viability of the kingmaking strategy, there are perceived benefits to large capital infusions. Well-funded startups are often seen as more stable by enterprise clients, which can enhance their attractiveness as preferred vendors for significant software purchases, a phenomenon observed with the legal AI platform Harvey.
However, historical evidence serves as a cautionary tale; mere financial backing does not guarantee success, with past failures in the logistics sector, including Convoy and Bird, highlighting the risks.
Nonetheless, leading VC firms continue to embrace this strategy amid the compelling potential of AI-driven companies. “The lesson of the power law has been learned. Companies can scale faster and reach unparalleled heights,” Peterson summarizes, reinforcing the appeal of early investment in promising AI startups.
