In early October, DualEntry, an AI enterprise resource planning (ERP) startup, announced a $90 million Series A round led by Lightspeed and Khosla Ventures, valuing the one-year-old business at $415 million.
The company seeks to replace legacy software like Oracle NetSuite with its offering that can automate routine tasks and provide predictive insights. The massive funding round from top-tier VCs signaled that the startup is likely experiencing phenomenal revenue growth.
However, one VC who declined to invest told TechCrunch that DualEntry’s annual recurring revenue (ARR) was just around $400,000 when he reviewed the deal in August. DualEntry’s co-founder, Santiago Nestares, denies that number. When asked about revenue when the deal closed, Nestares said it was “considerably higher than that.”
Even so, an extremely handsome valuation relative to revenue is becoming an increasingly common investment strategy among top-tier VC firms. The tactic is known as “kingmaking.”
This approach involves deploying massive funding into one startup in a competitive category, aiming to overwhelm rivals by granting the chosen company a bank-account advantage so significant that it creates the appearance of market dominance.
Kingmaking isn’t new, but its timing has shifted dramatically.
“Venture capitalists have always evaluated a set of competitors and then made a bet on who they think the winner is going to be in a category. What’s different is that it’s happening much earlier,” said Jeremy Kaufmann, a partner at Scale Venture Partners.
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This early aggressive funding contrasts with the last investment cycle.
“The 2010s version of this was just called ‘capital as a weapon,’” said David Peterson, partner at Angular Ventures. He pointed out that massive funding into Uber and Lyft was a canonical example of this, but the capital weaponization for the ride-sharing companies didn’t begin until they reached their Series C or D rounds.
As with Uber vs. Lyft, investors in DualEntry’s competitors Rillet and Campfire are evidently just as eager to see their bets succeed with the help of substantive capital. In early August, Rillet raised a $70 million Series B led by a16z and I …