BEIJING – Deepseek’s artificial intelligence breakthrough is inspiring the Chinese venture capital world after its decline for the third year in a row.
With Deepseek releasing Openai’s rival in late January, AI Drig Discovery Company Insilico Medicine had finalized a $110 million Series E Finance Round led by Hong Kong-based Value Partners. The transaction ended last month.
But many Chinese funds wanted to be “like an avalanche” at the very end that Insilico was planning a pay raise for the series “E2” series, Zhavoronkov said. “I’ve never seen this level of interest.”
Qiming Ventures Backed Insilico uses AI from Deepseek and other companies to create models for drug development. According to Insilico, which lists laboratories in China, the US and the Middle East, the drugs in 10 startups have already been approved for clinical testing.
Zhavoronkov added that during his trip to the US over the past few weeks, many US and other global investors have been asking about how to invest in Chinese AI companies.
“It looks like a Deepseek moment. It attracted a lot of attention from global investors to invest in China,” he said Monday. “I think the funds will be back.”
Regulatory uncertainty in both China and the US, particularly around IPOs and slow economic growth, has contributed to a sharp decline in Chinese venture capital activities in recent years. According to Pitchbook Data, VC investment in Chinese-based companies has declined for the past three years, reaching just $48.86 billion in 2024, at the lowest record in at least 2016.
Nowadays, feelings are changing as regulations become more clear. And when internet-based startups like Alibaba come into play, they encourage investors to take a different approach to the past.
“People are rushing just to find the next Deepseek,” said Annabelle Yu Long, founding and managing partner at Beijing’s Bai Capital. She also sits on the board of directors of the coach’s parents’ tapestry.
“Everyone is investing, but since we look at our core portfolio, I ask the team to keep new deals. [of around 6 companies] Her company has chosen to increase investments in existing holdings in the coming months, gaining very, very meaningful AI traction.”
Part of her call stems from her view that Chinese funds have far less capital than US funds to invest in AI. Instead of looking at new startups, Long said he expects entrepreneurs who are already using AI wells to succeed in the near future.
For example, Long said that Bai Capital Backed Black Lake, which sells manufacturing management systems, has been profitable this quarter as AI cuts service costs. Her other investment, a healthcare company called Regian, is more profitable with the help of AI, and Goldman Sachs is preparing an IPO, she added.
Long said he plans to list nine portfolio companies this year, primarily in Hong Kong, and has received many calls from international investors for the non-AI Chinese economy and Chinese entrepreneurship. “I’m definitely seeing a recovery in confidence.”
Other recent investment rounds reflect how capital is stacked with existing players. Zhavoronkov of Insilico said that some Chinese investors had previously lost almost all of their money in AI drug startups, but now they realize that just a little, perhaps more established player will make it.
This month, AI modelling company Zhipu AI raised about $137.68 million from Alibaba Cloud and Hangzhou-backed funds, according to records of 12 AI transactions in the first 10 days of March. The data also shows that robotics company Limx Dynamics has raised private amounts from Alibaba Group and other investors.
Holiday turning points
The Chinese New Year in late January marked a turning point for AI investment. Deepseek’s R1 model appeared just before the holidays, but the widely broadcast Spring Festival gala in the state media showed off the Unitree dance robot.
“I think Unitree and Deepseek are encouraging many foreign investors to seek opportunities here,” said Hongye Wang, executive director of Shenzhen-based Forebright Capital. He said some funding in the Middle East has been looking for opportunities at Chinese AI companies recently.
“I believe in confidence [is] He spoke about the domestic VCs and said many people are traveling again for meetings.
Wang said his company is investing in a company that manufactures mobile phone chargers and AI glasses, looking for opportunities in Humanoid robots and a company that offers solutions for computing inference. Wang said Masoned’s billions of US dollars will be invested at least five to six times this year.
Policy Support
Importantly, Beijing signals clear support for markets hit by regulatory crackdowns.
“The fact that President XI is [Jinping in February] Shaking the hands of the founders of Deepseek, generative AI gave it a green light for use on a large scale. Now you need to expect a huge number of Deepseek-like clones…it pops out and reveals what they’ve been doing over the past three years,” Zhavoronkov said.
Prime Minister Li Qiang’s work report last week said that China will work to “accelerate the development of venture capital investments and the growth of patient capital,” and refer to long-term investments.
The day after Li presented its plan, Zheng Shanjie, head of the National Development and Reform Commission, told reporters that the central government is planning a fund that is expected to mobilize 1 trillion yuan ($137.7 billion) for technology investment. Central bank governor Pan Gongsheng announced at the same press conference that the loan program for technological innovation will reach nearly 1 trillion yuan.
“From early stage investments to exits, policies will be more complete and clear,” said Liu Rui, vice president of China’s Renaissance Capital, in a Mandarin translated by CNBC.
He hopes that more resources will be directed towards AI applications this year, given the operating costs of the model and the faster declines than expected for China’s large consumer base.
But tensions with the US, from tariffs to technology restrictions, remain a hurdle for international investors pondering the opportunities for China AI.
According to Xuhui Shao, managing partner based in Palo Alto at Foothill Ventures, given its sensitivity with regard to AI and data, unlike Chinese-based companies, unlike global market-based companies, Chinese-based companies will find it difficult to expand overseas. His company focuses on the US and does not invest in China.
Even if it could be a large Chinese market, foreign investors should understand the risks of investing in China, including capital flow restrictions, Xiao said. However, he pointed out that “innovative breakthroughs” such as Deepseek are not surprising given that China has many university-educated engineers and data scientists, and can represent half of AI researchers at industry conferences.
“I think,” he said, “Competition always pushes the entire sector up. [to move] Forward and technology are not included at the border. ”
