Chinese venture capitalist Allen Zhu steers clear of mainland tech firms' AI large language model frenzy

Venture capitalist Allen Zhu Xiaohu, known for his early investment in ride-hailing giant Didi Chuxing, said he has no interest in funding Chinese start-ups building large language models (LLMs), the technology behind ChatGPT and other generative artificial intelligence (AI) services.

Investing "makes no sense since those LLM start-ups have neither [the relevant application] scenario nor data" for such a business model to prosper, said Zhu, a managing director at GSR Ventures, in his recent interview with online news portal Tencent News. "How do you make money out of just developing an LLM?"

At GSR, which invests in early-stage technology companies in the United States, China and other markets in East Asia, Zhu is recognised for his track record of identifying and funding potential new unicorns, which are start-ups valued at more than US$1 billion.

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"I believe in applications and those that can commercialise immediately," said Zhu, who indicated that he did not invest in any LLM-focused company on the mainland last year.

Sample code for an artificial intelligence large language model. Photo: Shutterstock alt=Sample code for an artificial intelligence large language model. Photo: Shutterstock>

His view echoes that of Baidu co-founder, chairman and chief executive Robin Li Yanhong, who described the repeated launch of various LLMs on the mainland as "a huge waste of resources" at the annual X-Lake Forum in Shenzhen last November.

Li pointed out that there were too many LLMs being introduced in mainland China, "but too few AI-native applications based on those models".

In January, China approved this year's first batch of LLMs. The latest approvals - a total of 14 LLMs and AI enterprise applications for commercial use - come after an initial number of generative AI services were allowed for release to the public last August.

The number of government-approved LLMs and related AI applications on the mainland currently total more than 40. But at present, there are more than 200 China-developed LLMs in the market.

Zhu said in the Tencent News report that he had invested in two start-ups, an AI job interviewer and an AI advertising producer, before San Francisco-based OpenAI launched ChatGPT in November 2022 to kick-start a worldwide AI frenzy.

Asked why some venture funds are still putting money on multiple LLM developers, Zhu said in the report that such bets were made based on a "fear of missing out".

He indicated that Beijing's antitrust campaign from late 2020 made it harder for investors to exit via mergers and acquisitions.

"If there were no antitrust efforts, I would love to invest in Wang Xiaochuan", Zhu said, referring to the Sogou founder's LLM start-up Baichuan.

The GSR managing director's focus on commercialisation, however, has made it tougher for mainland entrepreneurs to raise financing for their AI development initiatives.

That situation has prompted Lu Zhiwu, an AI professor at Renmin University of China and adviser to start-up Metabrain AGI, to complain that investors "always ask me how to make money and how to beat Big Tech", according to a June report by local media Jiemian.

Such a rigid evaluation criteria can become burdensome, as "investing in cutting-edge technology requires an open mind and belief in the technology", said David Liu, founding partner at private equity firm Capital O, according to the same Jiemian report.

Zhu's comments about the prospects of Chinese LLM start-ups come after reported major investments made by Alibaba Group Holding and other tech companies in new AI firms. Alibaba owns the South China Morning Post.

Alibaba is said to lead the latest funding round for AI start-up MiniMax, which would value the Shanghai-based company at more than US$2 billion. A report by Bloomberg on Tuesday said MiniMax was looking to raise at least US$600 million.

That deal would mark Alibaba's second major AI start-up investment this year after leading a funding round that raised more than US$1 billion for Beijing-based Moonshot AI, which was valued at more than US$2.5 billion.

Moonshot AI was founded last year by Yang Zhilin, a graduate of Beijing's Tsinghua University and Carnegie Mellon University in the US.

GSR's Zhu described both Sogou founder Wang and Moonshot AI's Yang as "excellent technologists", but indicated that these founders have not made commercialisation of their businesses clear to him, according to the Tencent News report.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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