DeepSeek AI: Why They're Bootstrapping, Not Taking VC Funding

DeepSeek's Independent Path to AI Innovation

According to a report published by the Wall Street Journal on Monday, Liang Wenfeng, the founder of DeepSeek, is currently prioritizing independent growth over seeking external investment.

Rapid Rise of DeepSeek

DeepSeek has quickly established itself as a leading AI startup globally. The Chinese AI firm garnered significant attention within Silicon Valley earlier this year following the release of its cutting-edge model.

A Different Approach to Funding

In contrast to many other AI model providers, which frequently publicize substantial funding rounds backed by well-known investors, Liang has not yet announced any fundraising activities.

Despite considerable interest from venture capitalists, DeepSeek remains focused on self-funding its operations.

Impact of Speculation

Speculation regarding potential investors has even led to unsubstantiated increases in the stock prices of certain Chinese companies. These rallies were driven by rumors, rather than confirmed information.

The company’s strategy highlights a commitment to organic development and a deliberate approach to financial partnerships.

Key Takeaways

• DeepSeek’s founder is not actively pursuing outside investment.
• The company’s latest AI model has generated considerable excitement in the AI community.
• DeepSeek distinguishes itself from competitors by prioritizing independent growth.

The Founder of DeepSeek Aims to Retain Control

A review of Chinese business filings conducted by TechCrunch reveals that Liang holds an 84% stake in DeepSeek. The remaining portion of the company is distributed among individuals connected to Liang’s investment firm, High-Flyer.

This ownership structure distinguishes DeepSeek from typical startups. Most startups rely on external funding and, consequently, accept a degree of outside direction. DeepSeek, however, operates largely under the direction of a single individual.

Liang’s Reservations About Venture Capital

Liang has expressed skepticism towards the priorities of venture capitalists. In a 2023 interview with Chinese news outlets, he stated his concerns regarding the emphasis on quick monetization of AI technologies over foundational research.

He found that many VCs prioritized immediate revenue generation, a perspective that contrasted with his own long-term vision for DeepSeek.

Maintaining Autonomy

According to reports in the Wall Street Journal, a primary reason for Liang’s reluctance to accept investment offers is his desire to preserve complete control over his company.

He is reportedly unwilling to cede decision-making authority to external investors. This stance underscores his commitment to independently guiding the development of AI at DeepSeek.

The founder’s preference is to maintain a singular focus on research and development, free from the pressures of rapid commercialization dictated by external stakeholders.

DeepSeek's Independent Funding Model

Unlike the majority of emerging companies, DeepSeek has not yet needed to seek external financial backing. This is due to a distinctive operational approach adopted by its founder, Liang.

Liang has successfully leveraged the revenues generated by High-Flyer to finance DeepSeek’s operations, thereby minimizing the necessity for investment from outside sources.

Challenges Beyond Capital

In 2023, Liang articulated that the primary obstacle facing DeepSeek isn't a lack of funds, but rather restrictions imposed on the export of sophisticated semiconductor chips.

He emphasized that limitations on chip shipments present a more significant hurdle than securing capital for the company’s growth and development.

A Self-Funded Approach

The ability to self-fund allows DeepSeek a degree of autonomy uncommon in the startup landscape.

This independence is particularly valuable given the geopolitical factors impacting access to crucial technology, such as advanced chips.

Implications of Limited Investment

While avoiding external investment offers benefits, it also potentially limits the speed of expansion.

However, DeepSeek appears to be prioritizing sustainable growth within the constraints of the current technological environment.

Potential Investment Raises Trust and Privacy Questions

Being a company based in China, DeepSeek is subject to stringent Chinese regulations that allow extensive government access to data.

This situation has fueled anxieties, leading to DeepSeek being prohibited by an increasing number of governments and private organizations.

Should DeepSeek secure funding from a Chinese investor, these restrictions could be intensified, given the investor’s potential exposure to similar governmental oversight.

The United States government has previously imposed sanctions on Chinese technology firms perceived as having close ties to the Chinese government, notably including the telecommunications leader Huawei and the drone manufacturer DJI.

Reports from The Information indicate that several Chinese state-backed entities have expressed interest in investing in DeepSeek, although it remains unconfirmed whether any offers have been accepted.

Data security and national security are key considerations in these discussions.

Implications of Chinese Investment

Accepting investment from a Chinese source could exacerbate existing concerns regarding data privacy and potential governmental influence.

The possibility of data being accessible to the Chinese government is a significant point of contention for international partners.

This could lead to further restrictions on DeepSeek’s operations in sensitive markets.

Past Precedents and Government Scrutiny

The U.S. government’s actions against Huawei and DJI demonstrate a willingness to act against companies deemed a national security risk.

This precedent suggests that DeepSeek could face similar scrutiny if it aligns itself too closely with entities linked to the Chinese state.

Transparency in DeepSeek’s funding sources will be crucial to mitigating these risks.

• Increased government oversight is a likely outcome.
• Potential limitations on market access could be imposed.
• Reputational damage is a possibility.

Ultimately, DeepSeek’s decision regarding investment will have significant implications for its future growth and global standing.

Potential Shifts in DeepSeek's Funding Strategy

Despite this, the possibility of DeepSeek seeking external funding in the future hasn't been entirely ruled out.

Recently, DeepSeek publicized its projected profit margin – a first for the company – indicating a move towards revenue generation. This is a factor that venture capitalists typically prioritize, despite previous statements from Liang dismissing its importance.

Continued progress and competition within the AI landscape will likely necessitate DeepSeek securing access to a greater quantity of advanced AI chips. These components represent a significant constraint on the company’s advancement, as highlighted by Liang in 2023.

The acquisition of these chips is costly and complicated by U.S. export restrictions imposed on China.

DeepSeek’s capacity for self-funding may also be diminishing. Reports indicate that while High-Flyer has historically performed well, certain key funds have experienced underperformance since 2022.

Adding to this challenge, the Chinese government has increased scrutiny and regulation of quantitative investment funds, such as High-Flyer, beginning in 2024.

Although specific companies haven't been officially named, reports suggest that DeepSeek has already attracted the attention of major players like Tencent and Alibaba.

A response to a request for comment from DeepSeek was not immediately received.