VCs Bet Big on AI ERP: Is This Kingmaking?

AI enterprise resource planning (ERP) startup DualEntry recently secured a $90 million Series A funding round, achieving a $415 million valuation. This significant investment, led by Lightspeed and Khosla Ventures, signals a broader trend where venture capitalists are employing a 'kingmaking' strategy. This approach involves concentrating substantial capital into a single startup early in its lifecycle, aiming to overwhelm competitors and create an appearance of market dominance.

This aggressive early-stage funding contrasts with previous investment cycles, where such strategies were typically reserved for later funding rounds. Competitors in the AI ERP space, such as Rillet and Campfire AI, have also recently closed substantial funding rounds, indicating a competitive race for market share fueled by significant VC backing. This pattern is also observed in other AI application categories like IT service management and SOC compliance.

While kingmaking can offer benefits, such as enhanced perception of stability for enterprise buyers, history shows that massive capitalization does not guarantee success. Precedents like Convoy and Bird serve as cautionary tales. Nevertheless, major VC firms continue to favor early bets on promising AI categories, driven by lessons from the power law dynamics observed in the 2010s, where early investors in successful companies saw immense returns.