Why Venture Capital Keeps Failing: The Rise of China's New Generation of Low Profile Builders Over Marketers and Fraudsters

The DeepSeek Phenomenon: A Wake-Up Call for Venture Capitalists

How DeepSeek’s Meteoric Rise Exposed the Flaws in Traditional VC Thinking

The artificial intelligence landscape has been shaken by DeepSeek’s rapid ascent, leaving both industry giants and venture capitalists scrambling to catch up. In just a few months, this research-driven AI powerhouse has disrupted the market, ignited global interest, and forced a hard look at how traditional venture capital firms evaluate high-tech investments.

Unlike its Chinese AI contemporaries such as MiniMax, Baichuan Intelligence, and Zhipu AI—companies that have eagerly courted capital—DeepSeek has taken an unconventional path. It has thrived without relying on external investment, leaving venture capitalists on the sidelines, desperately seeking a way in. This raises a fundamental question: Why did so many VCs fail to recognize and invest in what is now being hailed as one of the most significant AI breakthroughs?

VCs Miss the Mark: Why DeepSeek Didn’t Need Them

Despite the AI boom in China and globally, DeepSeek has managed to remain fiercely independent. Founded by Liang Wenfeng, a financial quant with a deep understanding of AI, the company benefited from its strong financial backing, primarily through High-Flyer Quant (also known as Phantom Quant), a hedge fund Liang founded in 2015. This deep-pocketed parent company provided ample resources, including an extensive GPU cluster—critical for large-scale AI model training.

Unlike traditional AI startups that require significant early-stage funding for computational infrastructure and research, DeepSeek didn’t need VC money to scale. This fundamental self-sufficiency set it apart from other AI ventures that rely on venture capital to survive.

But beyond capital, DeepSeek’s reluctance to engage with traditional VCs stems from a cultural and ideological divide. While most VCs push for rapid product commercialization, DeepSeek’s core mission is research and exploration. Liang Wenfeng has been vocal about his vision: prioritizing fundamental research over monetization. This long-term, research-first approach is rare in an industry where investors are pressured to deliver quick returns.

The DeepSeek FOMO Wave: Investors Left in the Dust

Now that DeepSeek has demonstrated its capabilities, the investment community is scrambling to correct its mistake. The sheer speed of DeepSeek’s rise—going from relative obscurity to a dominant player in under a year—has triggered a wave of FOMO (Fear of Missing Out) among VCs.

Even traditionally cautious investors, such as China’s AI skeptic Zhu Xiaohu of GSR Ventures, have changed their tune. Zhu, who previously dismissed large AI models as overhyped, publicly admitted he would invest in DeepSeek “at any cost” if given the chance.

This shift in sentiment highlights a deeper issue in the VC industry: a reactive rather than proactive approach to groundbreaking innovation. Many firms only recognize value after a company has already proven itself, rather than identifying potential early on.

What Has Been So Wrong in the VC Industry?

Misaligned Incentives and Short-Term Pressures

VCs are traditionally built around clear exit strategies and relatively short investment horizons. Groundbreaking startups like DeepSeek, however, thrive on long-term research and exploration rather than immediate product commercialization. DeepSeek’s founders have openly stated that their priority is to advance fundamental research, even if the “commercial rationale” is not immediately apparent. This focus on deep tech and research can clash with the VC mandate to deliver quick returns for limited partners. VCs are pressured to invest in ventures that promise rapid growth and clear monetization paths—even when such ventures may be less transformative in the long run.

The Cultural and Ideological Divide

The story of DeepSeek exposes a significant cultural rift between visionary founders and the investment establishment. Founders like Liang Wenfeng come from a background where self-sustaining capital allows them to focus on innovation without external pressure. VCs, by contrast, are accustomed to guiding startups through rapid scaling and exit strategies. This mismatch means that even when VCs are aware of the potential, their institutional mindset—shaped by expectations of commercial validation—prevents them from fully engaging with ventures that operate on a different paradigm.

Risk Aversion in the Face of Uncertain Commercialization

DeepSeek’s approach—investing in research without immediate plans for productization—presents an uncomfortable risk for investors. VCs need to account for the liquidity event: how and when will this technology be monetized? In a climate where capital is increasingly scrutinized, the absence of a defined commercial path or market-ready product makes many investors hesitant. This risk aversion is compounded by the fact that disruptive technologies often challenge the status quo, requiring a rethinking of existing business models. For many VC firms, the promise of long-term impact is overshadowed by the fear of tying up funds in ventures that do not fit their established investment criteria.

Overreliance on Established Metrics and Trends

VCs often follow prevailing trends and apply tried-and-tested valuation models. The investment community’s recent fixation on areas like AIGC (Artificial Intelligence Generated Content) reflects this tendency. However, such trends can obscure the subtle signals of true innovation—signals that may be apparent only to those who are willing to look beyond immediate metrics. DeepSeek’s success, achieved on a fraction of the usual cost for comparable models, signals that innovation can sometimes flourish outside the traditional commercialization pathways.

The New Generation of Chinese Entrepreneurs: Builders, Not Fakers nor Marketers

DeepSeek’s emergence signals a broader shift in China’s startup culture. It marks the rise of a new breed of entrepreneurs who prioritize technological breakthroughs over personal branding and market-driven hype.

This trend contrasts sharply with the previous generation of tech founders who were often featured in Forbes 30 Under 30, emphasized market growth over deep tech innovation, and engaged heavily in self-promotion. Liang Wenfeng, much like ByteDance’s Zhang Yiming, represents a different ethos: low-profile, execution-focused, and product-first.

These founders aren’t seeking the spotlight; they are building companies that redefine industries. Their focus on research and long-term impact over quick market wins makes them particularly challenging for traditional VCs to back—especially those that prioritize predictable growth and exit strategies over deep, fundamental innovation.

The Fall of Market-Driven Entrepreneurs

For years, China’s tech industry was dominated by entrepreneurs who were more marketers than builders—founders who knew how to generate buzz, secure funding, and drive valuations sky-high, often with little technical depth behind their products. This era is fading.

Investors are now looking beyond the “fake it till you make it” culture that plagued certain segments of China’s tech scene. Instead, they are betting on technical founders who deeply understand their industries and build from first principles.

The Future: What Comes After DeepSeek?

As DeepSeek continues to shape the AI landscape, several key investment trends are emerging:

• AI Infrastructure Boom: Companies providing cloud computing, chips, and storage solutions for AI workloads are seeing heightened demand, with firms like Nvidia, AMD, and Huawei benefiting.
• Enterprise AI Applications: While DeepSeek focuses on foundational models, the real commercial battle will be in enterprise AI applications that integrate these models into business operations.
• Open-Source AI Resurgence: DeepSeek’s rapid progress has intensified interest in open-source AI, a counterweight to proprietary models from OpenAI and Google DeepMind.
• Deep Tech Over Hype: Investors are shifting focus from highly speculative AI ventures to those with clear technological advantages and defensible moats.

A Turning Point for VC Thinking

DeepSeek’s story is a clear warning to VCs who have relied too heavily on traditional investment frameworks. The failure to invest in DeepSeek was not due to a lack of awareness—it was due to a fundamental misalignment between VC priorities and the realities of deep-tech research.

For investors, the takeaway is clear: The future belongs to those who can recognize and support research-driven innovation—not just chase the latest market trend.

VCs who want to back the next DeepSeek will need to rethink their strategies, build deeper technical expertise, and be willing to take risks on visionary founders who are more focused on the next decade than the next funding round.

The next wave of Chinese startups will be led by builders, not marketers—and only those who can spot the difference will win.