DeepSeek AI cranks open the spigots on Chinese venture capital

China’s venture capital world is experiencing a resurgence of interest and activity thanks to a groundbreaking artificial intelligence breakthrough by DeepSeek. After three consecutive years of decline, the AI landscape in China is seeing a revitalization with the release of DeepSeek’s OpenAI rival.

In a recent interview with CNBC, Alex Zhavoronkov, the CEO and founder of Insilico Medicine, revealed that his company had just closed a $110 million series E financing round led by Value Partners, a Hong Kong-based firm. The interest in participating in this funding round was so overwhelming that Insilico is now considering a follow-up series “E2” raise to accommodate the influx of Chinese funds eager to get involved.

Insilico, backed by Qiming Ventures, utilizes AI technology from DeepSeek and other companies to develop drug discovery models. With ten of their drugs already approved for clinical testing, Insilico is making waves in the pharmaceutical industry with research labs spread across China, the U.S., and the Middle East.

The buzz around DeepSeek’s AI breakthrough has not only caught the attention of Chinese investors but has also piqued the interest of global investors looking to get in on the action. This renewed enthusiasm for Chinese AI companies is a promising sign for the future of venture capital in the region.

The recent surge in funding and investment activity is a sharp contrast to the past few years, where regulatory uncertainty and slow economic growth dampened investor confidence. However, as regulatory clarity emerges and sentiment shifts, investors are adopting a more targeted approach, focusing on existing players rather than new startups.

Annabelle Yu Long, the managing partner of BAI Capital in Beijing, emphasized the importance of leveraging AI technology in existing portfolio companies to drive meaningful growth. By investing in companies that are already utilizing AI effectively, Long believes that the potential for success is higher, especially in a market where capital is limited compared to the U.S.

Recent investment rounds reflect the trend of capital flowing into established players in the AI space. Companies like Zhipu AI and LimX Dynamics have secured significant funding from major investors, signaling a growing interest in AI technologies.

China’s Lunar New Year marked a turning point for AI investment in the country, with DeepSeek’s R1 model and Unitree’s dancing robots capturing the attention of foreign investors. Confidence is returning to domestic VCs, with many actively seeking opportunities in the AI sector.

Policy support from the Chinese government is also playing a crucial role in fueling the resurgence of venture capital investment. President Xi Jinping’s endorsement of generative AI and Premier Li Qiang’s commitment to accelerating venture capital investment are positive signals for the industry.

Overall, the AI breakthrough by DeepSeek has ignited a wave of excitement in China’s venture capital world, signaling a bright future for AI innovation and investment in the region. With government support and increasing interest from global investors, the stage is set for a new era of growth and opportunity in the Chinese AI landscape. At a recent press conference, Central bank governor Pan Gongsheng made an announcement regarding a significant increase in the loan program for tech innovation, which is set to nearly double to as much as 1 trillion yuan. This move is aimed at providing more support for the tech industry in China and fostering innovation in various sectors.

Liu Rui, the vice president of China Renaissance, expressed optimism about the new loan program, stating that the policy surrounding tech investment in China has become more comprehensive and transparent. He emphasized that there will be a stronger focus on AI applications this year, driven by the decreasing costs of operating models and the vast consumer base in China.

However, despite the promising opportunities in the Chinese tech sector, tensions with the U.S. continue to pose challenges for international investors. Issues such as tariffs and tech restrictions have made some investors hesitant about entering the Chinese market. Xuhui Shao, a managing partner at Foothill Ventures based in Palo Alto, highlighted the complexities of investing in China, including restrictions on capital flow and the sensitive nature of AI and data regulations.

Shao pointed out that while China offers a large market for tech companies, foreign investors need to carefully consider the risks involved. He also acknowledged the innovative potential of Chinese engineers and data scientists, citing the example of DeepSeek, a groundbreaking technology developed in China.

Despite the geopolitical challenges, Shao believes that competition in the tech sector drives progress and that technology transcends borders. He emphasized that advancements in AI and other tech fields should not be limited by political tensions, as innovation knows no boundaries.

In conclusion, the increase in the loan program for tech innovation in China signals a commitment to fostering growth and innovation in the tech sector. While challenges remain for international investors, the potential for groundbreaking advancements in technology in China is undeniable. As the sector continues to evolve, collaboration and competition will play key roles in shaping the future of tech innovation on a global scale.