Why DeepSeek Is Avoiding Venture Capital — For Now
DeepSeek, a rising AI star from China, has garnered significant attention for its innovative models, quickly becoming one of the most talked-about startups in the tech world. Despite widespread interest from venture capitalists (VCs), founder Liang Wenfeng remains steadfast in his decision to keep his company free from outside investment. Here’s why.
1. The Quest for Control
At the heart of Liang’s reluctance to take on outside investors is his desire to retain full control of DeepSeek. Unlike many startups that must bring in external capital, DeepSeek is overwhelmingly owned by Liang—84%, to be precise. This makes the company an anomaly in the startup world, where venture funding typically comes with the expectation of influence over company decisions. Liang has made no secret of his disdain for the venture capital model, particularly the emphasis on quick returns. In past efforts to raise money, he was put off by VCs' insistence on rapidly monetising his groundbreaking AI work, rather than supporting the long-term research he prioritizes.
2. A Self-Sustained Operation
Most startups face the challenge of securing capital in their early stages, but DeepSeek has managed to avoid this. Liang has funded the company through the profits of his hedge fund, High-Flyer, significantly reducing the need for external investment. As he has explained, funding has never been an issue for DeepSeek. Instead, the company faces challenges stemming from external pressures, such as the U.S. government's restrictions on high-tech chip shipments. This financial independence has allowed DeepSeek to maintain its vision without the constraints that often come with investor expectations.
3. Privacy and Trust Concerns
Operating out of China, DeepSeek is subject to strict local data laws that allow the government broad access to data. This reality has raised concerns in the West, where governments and private companies have increasingly distanced themselves from the company due to potential security risks. Accepting outside investment—particularly from Chinese investors—could heighten these privacy concerns and make it even more difficult for DeepSeek to navigate a complex global market. The U.S. government has already sanctioned Chinese tech companies, like Huawei and DJI, citing security risks. DeepSeek is mindful of this scrutiny and the potential consequences of adding more investors to the mix.
What the Future Holds
While DeepSeek’s decision to avoid outside funding may seem sustainable for now, it may not remain viable in the long run. Recent signs, including the company’s first-ever announcement of a theoretical profit margin, suggest a possible shift in focus toward monetization—a shift that could attract the attention of VCs. Moreover, DeepSeek faces growing pressure to secure the advanced AI chips crucial to its progress. These chips, which are subject to strict export controls, are expensive and difficult to obtain. As the company looks to scale, its self-funding model could face serious limitations.
There are also signals that DeepSeek’s ability to remain independent may be waning. The hedge fund that supports the company has seen some of its flagship funds underperform in recent years, and the Chinese government has cracked down on quantitative funds, like High-Flyer, which could further restrict DeepSeek’s financial flexibility. Reports have also suggested that tech giants such as Tencent and Alibaba have shown interest in investing in the company, though it’s unclear whether DeepSeek is open to these offers.
For now, DeepSeek remains an outlier in a world dominated by venture-backed companies, holding firm to its philosophy of autonomy. But as the challenges of scaling and securing critical resources like AI chips grow more pronounced, Liang may ultimately face a difficult choice: continue to stand alone, or embrace the funding that could propel DeepSeek to new heights.