VC Kingmaking in AI: How Early Mega-Rounds Are Reshaping Startup Battles

A new wave of massive early-stage funding is hitting Silicon Valley. Top venture capital firms are placing enormous bets on very young AI companies. This aggressive strategy aims to crown a single winner in competitive new markets before true traction is proven.

The tactic, called “kingmaking,” involves deploying overwhelming capital to one startup in a field. The goal is to suffocate rivals by creating an insurmountable bank-account advantage. This marks a major shift from the previous decade’s playbook.

From Uber to AI ERP: The Acceleration of Capital as a Weapon

Massive funding to pick winners is not a new concept. In the 2010s, it was often called “capital as a weapon.” The epic battle between Uber and Lyft is a classic example. According to investors, the key difference now is timing.

Back then, the financial arms race began at Series C or D stages. Today, it is happening at Series A or even earlier. A recent case involves DualEntry, an AI ERP startup. The one-year-old company secured a $90 million Series A round in early October.

This round valued DualEntry at $415 million. TechCrunch reported this fundraising was led by Lightspeed and Khosla Ventures. The funding signals intense belief in the AI-powered enterprise software category. It also pressures competing startups to raise similar war chests immediately.

The High-Stakes Game of Perception and Power Law

Why bet so big so early? Venture capitalists are driven by the “power law.” This principle states that a tiny fraction of companies generate most returns. The lesson from the last cycle is clear: you cannot overpay for the true winner.

Investors like David Peterson of Angular Ventures note this mindset. Everyone saw how Uber and Lyft grew beyond early predictions. Missing the top company is costlier than overpaying for it. This fuels the current kingmaking frenzy.

The strategy also builds crucial market perception. Large enterprise customers see a well-funded startup as a safer vendor. This perception can drive sales, creating a self-fulfilling prophecy. Legal AI startup Harvey reportedly used this tactic successfully.

However, history offers warnings. Heavily capitalized companies like Convoy and Bird still failed. A large bank balance does not guarantee product-market fit or good management. The market ultimately decides the winner, not just investors.

The race to dominate new AI application markets is now a sprint fueled by unprecedented early capital. This kingmaking strategy creates instant front-runners but raises the stakes for everyone involved.

Thought you’d like to know

Q1: What is “kingmaking” in venture capital?

Kingmaking is an investment strategy where top VCs pour massive capital into one startup in a competitive field. The goal is to make it the perceived winner by giving it an overwhelming financial advantage over rivals very early on.

Q2: How is current kingmaking different from past strategies?

The key difference is timing. Previously, huge “capital as a weapon” rounds happened at Series C or D stages once some traction was proven. Now, these mega-rounds are occurring at Series A or earlier, often before significant revenue is generated.

Q3: What is an example of this trend?

A clear example is AI ERP startup DualEntry. According to TechCrunch, the one-year-old company raised a $90 million Series A, valuing it at $415 million. Competitors Rillet and Campfire AI have also raised large back-to-back rounds in response.

Q4: Why are VCs using this strategy now?

VCs are intensely focused on the “power law.” They believe missing the ultimate category winner is more costly than overpaying for it early. Betting huge sums on a promising startup early can create market perception that helps it actually win.

Q5: What are the risks of kingmaking?

The main risk is that capital alone cannot guarantee success. Companies still need strong products, market fit, and execution. History shows well-funded companies like Convoy can still fail, wasting investor capital and potentially distorting market competition.