ChatGPT has brought artificial intelligence to the forefront of institutional investors' minds and Chinese AI companies are benefiting from that interest — even if limited partners and venture capital firms are keeping silent on the topic.
A February report by the Center for Security and Emerging Technology, a research organization within Georgetown University in Washington, said that Chinese AI firms raised $110 billion between 2015 and 2021, of which $40.2 billion came from syndication deals in which U.S. investors participated. The report did not detail how much of the $40.2 billion was allocated by U.S. institutional investors.
Since then, relations between China and the U.S. have worsened over several concerns, including data privacy and competition for technological supremacy. In October, the Biden administration banned the export of high-end AI chips to Chinese companies, leading to China accelerating its push into developing its own chips.
Venture capital players have pinpointed AI as a major trend for the future. There is increasing interest in generative AI, said Irene Chu, partner and head of new economy and life sciences of KPMG China in Hong Kong.
Globally, venture capital activity has fallen steadily over the past year, with deal value plunging 60.4% to $57.3 billion in the first quarter of the year from $144.8 billion a year earlier, according to the KPMG Venture Pulse Q1 2023 report released on May 2. U.S. deal value fell 55.2% to $31.7 billion, and Asia venture capital investments fell 58.6% to $13.5 billion.
VC investment in China fell to $7.4 billion —less than half of the $15.1 billion from a year ago. The report did not break out data specific to AI investments.
Industry players generally agree that in China, the companies with the most potential in the AI space are mostly larger firms because of the resources needed to run functional AI technologies — that means they tend to be growth or late-stage private firms, or large, listed technology companies like Baidu Inc. and Alibaba Group Holding Ltd.
"Generally at this moment, investors are still cautious given the slow exit activity in the IPO market," Ms. Chu said. "Early stage startups or first time fundraisers will need to rely more on government funding."
Still, prompted by the ChatGPT craze, new AI companies have sprung up in China. GuangNianZhiWai, a new Beijing-based AI firm set up to rival OpenAI, the research company behind ChatGPT, raised $230 million in seed funding during the first quarter, according to the KPMG report, making it among the top 10 financings in Asia-Pacific.
GuangNianZhiWai was set up by Wang Huiwen, a tech veteran who co-founded e-commerce platform Meituan, which now has a market cap of more than HK$800 billion ($102 billion) on the Hong Kong exchange.