DeepSeek suspends second funding round, Bloomberg reports

Key Takeaways

• DeepSeek has informed prospective investors it is suspending its second fundraising round, according to Bloomberg News
• The company completed its first funding round at $300 million equity value in February 2025, led by China Merchants Bank
• DeepSeek's decision comes after its R1 model launch in January 2025 triggered a $600 billion single-day drop in Nvidia's market cap

DeepSeek, the Chinese AI startup that rattled Silicon Valley earlier this year, has told prospective investors it is suspending its second fundraising round. Bloomberg News reported the pause on July 25, citing people familiar with the matter. Reuters could not independently verify the report. No timeline for resumption was disclosed.

The decision marks a sharp pivot for a company that, just six months ago, seemed poised to capitalize on global attention following its R1 model release. That January 2025 launch demonstrated reasoning capabilities rivaling OpenAI's offerings at a reported training cost of just $5.6 million, triggering a historic selloff in U.S. tech stocks.

What do we know about DeepSeek's funding history?

DeepSeek completed its first external funding round in February 2025. China Merchants Bank led that round, which valued the company's equity at $300 million. The startup's overall valuation reportedly exceeded $2 billion at the time. Before that raise, DeepSeek operated entirely on capital from its parent company, High-Flyer, a Hangzhou-based quantitative hedge fund founded in 2017 by Liang Wenfeng.

Liang runs both entities. High-Flyer manages billions in assets and gave DeepSeek an unusual runway. Most AI startups need external capital to fund compute infrastructure. DeepSeek, backed by a profitable hedge fund, could move faster without board pressure or dilution concerns. The first round appeared less about survival than strategic positioning.

The second round, now suspended, would have marked the company's attempt to scale beyond the hedge fund's resources. What changed between February and July remains unclear. Bloomberg's sources did not specify whether the pause stemmed from valuation disagreements, strategic shifts, or external factors like U.S. export restrictions.

Why would DeepSeek pause fundraising now?

Three possibilities stand out, though none are confirmed.

First, valuation mismatches. DeepSeek's viral moment in January generated enormous hype. Investors likely showed up expecting to pay premium prices. But hype fades. If DeepSeek's leadership believed the valuations on offer underestimated their long-term potential, walking away makes sense. Better to wait than accept dilutive terms.

Second, strategic uncertainty. The U.S. has progressively tightened export controls on advanced AI chips. DeepSeek built its models using Nvidia H800 chips, already a restricted workaround. Stricter controls could further limit access to compute. If the company is uncertain about its ability to scale training runs, it may prefer to conserve cash rather than spend aggressively on infrastructure it cannot fully utilize.

Third, operational focus. Fundraising is distracting. It pulls founders into pitch meetings, due diligence calls, and negotiation cycles. DeepSeek has maintained a notably secretive posture since its founding in 2023. The company rarely comments publicly and has no official social media presence. A leadership team that prioritizes engineering over public relations might simply prefer to defer the fundraising circus.

How does DeepSeek compare to U.S. AI labs on funding?

The funding gap between DeepSeek and its American rivals remains enormous. OpenAI has raised over $13 billion and was valued at $157 billion in its most recent round. Anthropic has secured more than $7 billion from investors including Google and Amazon. xAI, Elon Musk's AI venture, closed a $6 billion round in late 2024.

DeepSeek's apparent advantage lies in efficiency. The company claimed it trained its V3 model for $5.6 million, a figure that invited skepticism but has not been publicly disproven. If true, DeepSeek achieves competitive results with a fraction of the compute budget. That efficiency could reduce its need for external capital. Or it could be a temporary advantage that evaporates as models scale.

What does this mean for the AI funding market?

DeepSeek's pause arrives as AI funding consolidates. The hottest startups still attract capital, but mid-tier players face tougher terms. Investors who chased every AI pitch in 2023 and 2024 have grown more selective. They want proof of differentiation, not just transformer architecture and a pitch deck.

For Chinese AI startups specifically, U.S. sanctions add complexity. Investors must weigh technical promise against geopolitical risk. A company that cannot access cutting-edge chips may struggle to compete at the frontier. A company that can access chips through workarounds may face sudden disruption if those workarounds close.

DeepSeek's pause does not signal distress. The company has hedge fund backing and does not appear cash-constrained. But it does suggest the AI funding market is not purely a seller's paradise, even for a company that embarrassed Nvidia and OpenAI six months ago.

What happens next?

DeepSeek has not commented publicly. The company's communication style, or lack thereof, means we may not hear anything until the next model drop or funding announcement. Bloomberg's report did not indicate whether the pause was temporary or indefinite.

For now, DeepSeek continues operating with its existing capital. If the company releases a successor to R1 or V3 in the coming months, expect investor interest to reignite. If it goes quiet, the funding pause may stretch longer than anticipated.

The broader signal is that even the most hyped AI startups are not immune to capital discipline. DeepSeek proved it could build competitive models cheaply. Whether it can build a sustainable business remains unproven.

Frequently Asked Questions

Why did DeepSeek pause its fundraising?

DeepSeek has not publicly stated its reasons. Possibilities include valuation disagreements with investors, strategic uncertainty around U.S. chip export restrictions, or a preference to focus on product development rather than fundraising activities.

How much has DeepSeek raised so far?

DeepSeek completed its first external funding round in February 2025 with an equity value of $300 million, led by China Merchants Bank. The company's overall valuation reportedly exceeded $2 billion.

Who owns DeepSeek?

DeepSeek is a subsidiary of High-Flyer, a Hangzhou-based quantitative hedge fund founded in 2017 by Liang Wenfeng, who also leads DeepSeek. Before the February 2025 round, the company operated entirely on High-Flyer's capital.

Is DeepSeek in financial trouble?

There is no public evidence of financial distress. The company is backed by a profitable hedge fund and does not appear cash-constrained. The funding pause may reflect strategic choice rather than necessity.

How does DeepSeek's funding compare to OpenAI?

OpenAI has raised over $13 billion and was valued at $157 billion in its most recent round. DeepSeek's $300 million first round and $2 billion valuation are significantly smaller, though the company claims far greater capital efficiency.

Source: Tech-Economic Times / ET