DeepSeek: AI disruption shakes up VC strategies

 

The recent launch of DeepSeek, which disrupted the AI (artificial intelligence) sector by emerging as a formidable challenger to ChatGPT while being developed at a fraction of the cost, underscores the rapid evolution of the AI ecosystem. 

This development highlights the ever-expanding scope of artificial intelligence and the competitive dynamics shaping the industry.

As businesses across sectors increasingly integrate AI-driven solutions to maintain a competitive edge, Venture Capitalists (VCs) are also actively seeking opportunities in startups offering AI solutions.

However, despite the enthusiasm, there remains a cautious sentiment regarding the inherent risks associated with AI investments. Experts emphasise that given the industry's rapid transformation and the fact that AI innovation is still in its nascent stages, it is difficult to predict which technologies will stand the test of time and which will become obsolete.

Talking to Business Today, Ankit Anand, Founding Partner at Riceberg Ventures, an early-stage VC firm, notes that DeepSeek has upended the conventional belief that solving large-scale AI problems requires ever-increasing computing power. “DeepSeek challenged the conventional wisdom that you just ‘throw more compute’ at large-scale AI problems. By applying a novel architecture, they lowered costs and improved performance, proving that true breakthroughs can still happen even in today’s fast-moving AI landscape,” he says.

VCs, Anand adds, are now focusing on whether AI startups have a long-term strategy. “In this landscape, usually VCs measure how the team intends to stay ahead as AI evolves. If they have a clear vision for ongoing R&D and a track record of technical execution, that indicates real staying power rather than a one-off innovation,” he says.

The challenges of betting on AI

While the AI boom has drawn significant investor interest, the sector remains fraught with challenges. The biggest threat comes from Big Tech players like Microsoft and Google, which can swiftly integrate AI capabilities into their ecosystems, making niche solutions redundant.

Sahil Chopra, VP, Growth & Marketing at Gurugram-based Inflection Point Ventures, highlights additional hurdles—high computing costs, regulatory uncertainty, and the looming risk of obsolescence. “The key is to support businesses with good execution, agility, and a well-defined monetisation plan. With the appropriate team and a clear route to product-market fit, these risks may be transformed into substantial possibilities,” he explains.

The investment landscape is transitioning from a focus on fundamental AI models to applications and infrastructure. While core AI models demand significant resources and face intense competition, applications and infrastructure firms are emerging as long-term value creators by enabling AI adoption across industries.

However, the so-called “AI premium” is leading to overvaluation, particularly for applications that lack a strong technical moat. Such startups may struggle to raise follow-on funding rounds—especially if Big Tech enters the same space.

Bruce Keith, Co-founder & CEO of Bengaluru-based AI investment firm InvestorAi, believes DeepSeek’s success has reinforced the importance of smart engineering over sheer computing power. “What DeepSeek has done is shown what smart engineering can do and reminded everyone that the race is never won after the first lap,” he says.

For AI startups, Keith stresses the need for sustained R&D investment. “For us as a startup, we continue to spend a substantial portion of our budget on R&D—it is 15-20% of our headcount. It is important to keep experimenting, but to do it with a clear end goal on what you are solving for. In the applications space,being vertical and having deep domain knowledge is a key input into AI coding and engineering,” he adds.

As AI innovation accelerates, the challenge for both startups and investors will be navigating an industry that is still taking shape—where today’s breakthroughs could quickly become tomorrow’s legacy tech.