VCs deploy ‘kingmaking’ strategy to crown AI winners in their infancy (techcrunch.com)

In early October, AI ERP startup DualEntry announced a substantial $90 million Series A funding round led by Lightspeed and Khosla Ventures, propelling its valuation to $415 million despite its annual recurring revenue (ARR) being reported at only about $400,000 earlier. This massive investment underscores a new trend in venture capital known as “kingmaking,” where investors deploy significant capital to a select startup in a competitive market, aiming to establish a dominant player early on. Notably, this strategy contrasts with previous cycles where such investments typically occurred at later funding stages. The significance of kingmaking lies in its potential to redefine competitive landscapes within the AI/ML community, allowing chosen startups to gain an unfair market advantage that may deter competition. This approach isn't universally accepted, as some VCs remain wary of its risks, especially given that many startups, including others in the AI ERP space, have modest revenues despite rapid funding rounds. However, early investment boosts perceived credibility, encouraging major enterprise buyers to choose well-funded startups for substantial software purchases. As venture capitalists increasingly favor early bets in promising AI categories, the implications for market dynamics and startup sustainability could be profound, marking a new phase in the evolution of the tech investment landscape.