DeepSeek Shuns VC Funding: 3 Key Reasons

DeepSeek, a leading AI startup that's been making waves globally, especially after its latest model shook up Silicon Valley, is taking a unique approach to funding. Founder Liang Wenfeng isn't rushing to accept outside investments, despite the buzz and interest from venture capitalists (VCs), according to a recent Wall Street Journal report.

Unlike other AI model providers who frequently announce large funding rounds with big-name investors, Liang has kept quiet about any fundraising efforts. This silence has even led to unfounded stock market rallies in China, fueled by rumors about potential investors.

Liang's Control and Vision

A TechCrunch analysis of Chinese corporate records reveals that Liang holds an 84% stake in DeepSeek, with the remaining shares owned by individuals connected to his hedge fund, High-Flyer. This structure allows DeepSeek to operate more like a solo venture, free from the typical external influences that come with outside capital.

Liang's reluctance to accept VC funding stems from his past experiences. In a 2023 interview with Chinese media, he expressed frustration with VCs' focus on quick monetization rather than fundamental research. This misalignment with his vision for DeepSeek is a key reason he's hesitant to share control, as reported by the WSJ.

Self-Funding and Challenges

While most startups rely on external funding from the get-go, DeepSeek has been able to bootstrap its operations using profits from High-Flyer. "Money has never been the problem for us; bans on shipments of advanced chips are the problem," Liang stated in 2023.

However, being a Chinese company, DeepSeek faces strict government regulations that allow broad data access. This has led to increasing bans from various governments and private companies, concerned about data privacy and security. Accepting funding from Chinese investors could exacerbate these issues, given similar concerns about their ties to the government.

The U.S. has a track record of sanctioning Chinese tech firms perceived as close to the government, like Huawei and DJI. Despite this, some Chinese state entities have approached DeepSeek for investment, though there's no evidence that DeepSeek has taken them up on the offer, according to The Information.

Shifting Dynamics

While DeepSeek has been self-funded so far, the landscape might be changing. Earlier this month, the company announced a theoretical profit margin for the first time, hinting at a move toward monetization—a shift that could make it more appealing to VCs.

To keep pace with other AI giants, DeepSeek will likely need more advanced AI chips, which are both expensive and heavily restricted in China due to U.S. export controls. These chips represent the biggest hurdle to DeepSeek's development, as Liang noted in 2023.

Moreover, DeepSeek's ability to self-fund may be waning. High-Flyer's flagship funds have underperformed since 2022, and the Chinese government has been cracking down on quant funds like High-Flyer since 2024, according to the WSJ.

Despite no concrete names being mentioned, DeepSeek has reportedly caught the eye of tech giants Tencent and Alibaba. The company did not immediately respond to requests for comment on these developments.