Kingmaking Strategy Reshapes AI Startups in 2025
The kingmaking strategy is transforming how AI startups are funded, and many readers today are searching for what it means, why VCs use it, and how it shapes early market winners. In the fast-moving world of artificial intelligence, investors are deploying massive sums at earlier stages than ever before, hoping to anoint category leaders long before their products mature. This shift has created eye-catching valuations, intense competitive pressure, and a growing debate about how sustainable the model really is. For startup founders, the question is simple: does kingmaking represent an opportunity or a risk? And for the broader tech ecosystem, does this strategy fuel innovation, or does it distort it?
Credit: Nora Carol Photography / Getty ImagesVCs Funnel Capital Into Early AI Leaders
In October, AI enterprise resource planning startup DualEntry became one of the most visible examples of kingmaking in action. The one-year-old company announced a staggering $90 million Series A round led by Lightspeed and Khosla Ventures, valuing the business at $415 million despite having minimal revenue. The company promises to replace legacy ERP platforms like Oracle NetSuite by automating routine tasks and delivering predictive insights that reduce operational bottlenecks. Such a large investment from elite firms sent a clear market signal: DualEntry was being positioned as a future category leader. Still, questions emerged about the company’s real traction, including claims from one investor who passed on the deal, stating its ARR was around $400,000 earlier in the year.
The Revenue Debate Highlights an Industry Trend
DualEntry’s co-founder, Santiago Nestares, denied that revenue figure, saying numbers were “considerably higher” by the time the deal closed. Whether the startup had hundreds of thousands or millions in ARR, the valuation outpaced traditional SaaS metrics by a wide margin. But in today’s AI funding climate, that discrepancy is becoming increasingly common. Venture firms are less concerned with historical revenue and more focused on perceived competitive advantage. The reasoning is straightforward: in AI, speed matters, and the company that scales fastest tends to capture the most data, talent, and market share. This dynamic encourages outsized bets even when financial fundamentals lag behind.
Why Kingmaking Is Surging in the AI Boom
The kingmaking strategy isn’t new, but the timing has shifted dramatically. Historically, investors waited until later rounds to deploy market-defining amounts of capital, once a startup demonstrated clear traction. Now, AI’s rapid pace forces VCs to act earlier, selecting winners before there is real proof. According to investors familiar with the strategy, it works by overwhelming rivals with a war chest so large that it gives the anointed startup a structural advantage—more engineers, faster product development, and aggressive go-to-market execution. As one investor put it, “If you can buy the perception of dominance early, the market often treats you like the actual leader.”
How Kingmaking Creates a Winner-Takes-Most Landscape
In competitive categories like AI infrastructure, data workflow automation, and enterprise analytics, startups are increasingly racing to secure the largest round, not simply because they need the capital, but because it signals credibility. Investors know that enterprises often gravitate toward vendors that appear stable and well-funded. With millions in the bank, these startups can undercut pricing, out-hire competitors, and acquire customers more aggressively. This creates a winner-takes-most environment where the company with the deepest pockets sets the pace, often leaving smaller players scrambling for survival.
The Strategy’s High Rewards—and High Risks
While kingmaking can accelerate growth, it also introduces significant risk for both founders and investors. A startup given hundreds of millions early must scale at breakneck speed, often before operations or product-market fit fully solidify. That pressure can lead to premature expansion, inflated burn rates, and strategic misalignment. For VCs, backing a winner too early can mean locking in a valuation that becomes difficult to defend if momentum stalls. And because AI markets shift quickly, betting big on the wrong technical direction can turn a once-promising category leader into an expensive cautionary tale.
Founders Feel the Pressure of Hyper-Growth Expectations
For founders receiving kingmaking-level capital, expectations skyrocket instantly. Investors anticipate rapid hiring, enterprise-grade infrastructure, and an execution velocity that often outpaces a normal startup’s development curve. This environment can be both empowering and overwhelming. Some founders thrive on the acceleration, leveraging the capital to build category-defining products. Others find themselves caught in a cycle of spending, rebuilding, and racing to justify valuations that were set months before the product matured. As one early-stage founder noted privately, “You’re not just building a startup—you’re building the story that your investors promised to the market.”
Market Perception Often Becomes a Self-Fulfilling Prophecy
One of the most fascinating aspects of kingmaking is how quickly perception becomes reality in the AI ecosystem. When prominent VC firms fund a startup at a massive valuation, prospective customers assume the company has long-term stability. That perception accelerates deal flow, creating the revenue growth that ultimately justifies the valuation. Competitors, meanwhile, may struggle to attract similar funding, making it harder for them to keep pace technically. In this way, the strategy can reshape entire categories by creating gravitational pull around a single company—sometimes deserved, sometimes premature.
Critics Warn the Strategy Can Distort Markets
Despite its success stories, critics argue that kingmaking can distort markets by prioritizing capital strength over actual innovation. Startups with genuinely better products may get overshadowed simply because they lack investor backing. Meanwhile, overfunded companies can crowd out competition by subsidizing prices or locking in customers with long-term contracts. This dynamic raises concerns about whether the strategy encourages healthy innovation or merely amplifies the influence of elite VC networks. Several analysts caution that the market could see a correction if too many kingmade startups fail to meet their lofty expectations.
The Strategy Will Likely Shape AI’s Next Decade
As AI continues to redefine global industries, the kingmaking strategy is likely to remain a central force in shaping early winners. Investors will keep searching for the next foundational platform, betting big on startups they believe can establish moats quickly. Founders, meanwhile, must navigate the delicate balance between leveraging capital and maintaining operational discipline. The next decade of AI growth may hinge on whether kingmade startups can convert their early advantage into long-term, defensible market leadership. What’s clear already is that this strategy isn't just influencing the AI ecosystem—it’s rewriting its rules.
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