After pouring billions into AI, venture capital faces a reckoning with DeepSeek breakout: 'It's a gut check'

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Since OpenAI launched ChatGPT in November 2022, top venture capital firms have raced to throw eye-watering sums of money at artificial intelligence companies, driven by the idea that the development of large language models—the technology underpinning generative AI—would require armies of engineers and war chests of chips. 

But that logic was flipped on its head last week when a little-known Chinese startup called DeepSeek unveiled an AI model that rivals cutting-edge ones from the U.S. leaders of OpenAI and Anthropic, but which is much less expensive to train and run. DeepSeek has said that its V3 model—which it unveiled in December and is equivalent to OpenAI’s GPT-4o on many benchmarks—had cost it less than $6 million to train. V3 serves as the precursor model to R1.

U.S. AI startups raised a record $97 billion in 2024, according to PitchBook, with $20 billion going to xAI, OpenAI, and Anthropic in the last three months alone.