Beijing – DeepSeek’s AI breakthrough is arousing the Chinese venture capital world after its three consecutive years of decline.

As DeepSeek releases Openai competitor In late January, AI drug discovery company Insilico Medicine is finalizing a US$110 million Series E financing from Hong Kong. Value PartnersAlex Zhavoronkov, the startup’s CEO and founder, told CNBC in an exclusive interview. The deal ended last month.

Zhavoronkov said so much Chinese fund wants to compete at the last minute – “like an avalanche” – Insilico is planning the “E2” raising series. “We’ve never seen this interest before.”

Qiming Ventures-backed Insilico uses DeepSeek and other companies’ AI to create models for developing drugs. Insilico said the startup’s ten drugs have been approved for clinical testing, which lists research laboratories in China, the United States and the Middle East.

Zhavoronkov added that during his trip to the U.S. over the past few weeks, many U.S. and other global investors have asked him about ways to invest in Chinese artificial intelligence companies.

“It seems like this is a deep moment, and it has attracted great interest from global investors in Chinese investment,” he said on Monday. “I think the funds will come back.”

Regulatory uncertainty in China and the United States, especially around IPOs and slow economic growth, has led to a sharp decline in China’s venture capital activity in recent years. VC investment in Chinese companies has fallen for three years, reaching only $48.86 billion in 2024, the lowest record, dating back at least to 2016, according to PitchBook.

Now, with the advent of regulatory clarity, sentiment is changing and investors are encouraged to take a different approach, when internet-based startups such as Alibaba emerged.

“People are rushing to find the next deep game,” said Annabelle Yu Long, founding and managing partner of Bey Capital. She also sat on the board of coaching her parents’ tapestries.

“Everyone is investing, but I ask my team to stick to the new deals because we’re seeing a core portfolio of (about 6 companies) getting very, very meaningful AI appeal,” she said.

Part of her call stems from her belief that Chinese funds are much lower than what we invest in AI and need to adopt a target approach. Lang said that instead of looking at new startups, he hopes to be entrepreneurs who have already used AI in the near future.

For example, Black Lake, which sells Bai Capital-backed by manufacturing management systems, has been profitable this quarter because AI reduces service costs. She added that her other investment, a healthcare company called Lejian, has become more profitable with the help of AI, and Goldman Sachs is preparing for its IPO.

Lang said she plans to list nine portfolio companies this year, mainly in Hong Kong, and has received many calls from international investors about the Chinese economy and Chinese entrepreneurship. “I will definitely see a return of confidence.”

Other recent investment rounds also reflect how capital accumulates into existing participants. Insilico’s Zhavoronkov said some Chinese investors had lost almost all their money on AI drug startups before, and now recognize that only a few (probably more mature) players will do it.

According to PitchBook’s 12 days in the first 10 days of March, AI model company Zhipu AI raised funds equivalent to about $136.8 million from Alibaba Cloud and Hangzhou-backed funds. The data also shows that robotics company Limx Dynamics has raised undisclosed quantities from Alibaba Group and other investors.

The Chinese Lunar New Year in late January marks Turning point Used for AI investment. DeepSeek’s R1 model was released just before the holidays, while the spring season of state media broadcasts showed off Unitree’s dance robot.

“I think Unitree and DeepSeek encourage many foreign investors to try to seek opportunities here,” said Hongye Wang, executive director of Shenzhen-based Forebright Capital, whose funds come at the cost of USD and Chinese yuan. He noted that some Middle Eastern funds have been looking for opportunities for Chinese artificial intelligence companies recently.

“I believe confidence will come back,” he said of domestic venture capital, noting that many people set out to meet again.

Wang said his company has invested in a company that makes mobile phone chargers and AI glasses and is looking for opportunities for human robots and companies that offer computing inference solutions. Wang said Forebright has billions of dollars in managed assets and plans to make at least five to six investments this year.

“President Xi Jinping (Jining in February) was shocked The hands of the founder of DeepSeek “Now you should expect a lot of green lights like DeepSeek’s clones to make the generative AI use for large scale … This will pop up and just reveal what they’ve done over the past three years,” Zhavoronkov said.

Xi Jinping held a closed seminar last month with some of the country’s most prominent business leaders, including Alibaba founder Jack Ma.

“People underestimated the importance of this meeting,” Alibaba Group Chairman Joe Sisai says On CNBC Live broadcast Wednesday in Singapore.

“What this conference has done in the entire entrepreneur sector or … the private sector gives private enterprise people confidence to invest in their business,” he said.

Prime Minister Li Qiang’s work report last week said China will work to “accelerate the development of venture capital and the growth of patient capital”, referring to long-term investment.

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 lending plans for technological innovation will almost double to 1 trillion yuan.

“From early investment to exit, the policy is more complete and clear,” said Liu Rui, vice president of China Revival at CNBC Translation.

He expects that given the rapid decline in model operation costs and the large consumer base in China will be more resourced for AI applications this year.

But tensions with the United States, from tariffs to technical restrictions, remain a barrier for international investors considering China’s AI opportunities.

Xuhui Shao, a management partner at Foothill Ventures, said that unlike U.S. companies that have access to global markets, it is also difficult to expand abroad due to the sensitivity of AI and data. His company focuses on the United States and does not invest in China.

Even with the potential of large Chinese markets, foreign investors need to understand the risks of investing in China, such as restrictions on capital flows, Shao said. But he noted that “innovation breakthroughs” like DeepSeek are no surprise, as China has many university-educated engineers and data scientists who can represent half of AI researchers at industry conferences.

“I think competition always pushes the entire sector (going forward) and technology is not controlled by the boundaries,” he said.

Clarification: This story has been updated to accurately reflect the English name of the Chinese Renaissance.