DeepSeek founder Liang Wenfeng—a hedge fund billionaire who controls nearly the entire company—has spent years refusing outside money. Then, in mid-April, reports emerged that DeepSeek was raising at a $10 billion valuation. Within three weeks, that number hit $20 billion. By May 6, reports alleged that number had climbed to $45 billion–50 billion, with a target raise of up to $7.35 billion. The lead investor: The China Integrated Circuit Industry Investment Fund (a.k.a. the Big Fund)—the same government vehicle that bankrolls the country’s biggest chipmakers. 

The infusion of state capital into DeepSeek isn’t a one-off occurrence.

According to a recent PitchBook analyst note on China’s AI market, the move is the logical endpoint of a decade-long structural shift in government policy. Government-linked investors in China went from fewer than 10 AI deals per year before 2018 to more than 140 deals in 2025—roughly a 15x increase in participation. In semiconductors, which is what both DeepSeek and the Big Fund care most about, the state’s footprint is even more disproportionate. 

“The state recognizes they can’t really match what Nvidia or the rest of the world’s AI giants are doing,” senior VC analyst at Pitchbook, Kaidi Gao, told Fortune. “But there is a different game that they can play. They can deploy capital into what are the most readily addressable sectors,” Gao said, citing semiconductors, compute infrastructure, and hardware as among those sectors.

And, while Chinese AI deal volume has stabilized at around $10 billion to $11 billion annually since 2024—well below the 2021 peak of $23.3 billion—the average deal size is ballooning. Median AI deal sizes in China have risen from $4 million in 2020 to $7.4 million in 2026. In semiconductors specifically, median round sizes hit $27.45 million in 2025 and have surged further this year to $30.48 million this year.

Some of the biggest rounds are anchored by state-backed capital, with private domestic investors co-investing alongside. Moore Threads, a Beijing-based aspiring Nvidia rival, raised $720 million at a $4.1 billion valuation in February 2025. In January 2026, Moonshot AI pulled in $700 million at a $10 billion valuation while StepFun reportedly raised $717 million. These bets are scale financings for companies the Chinese government has identified as national champions, funded by government entities and state-backed corporations—very different from the private-capital-fueled U.S. model (although recent Trump administration investments in some rare earths minerals and semiconductor industry firms mark a shift in the U.S. approach as well).

Regulatory pressure has only upped the ante. In late April, China’s top economic planning body quietly instructed Moonshot AI, StepFun, and ByteDance not to accept U.S. capital in funding rounds without explicit government clearance. The trigger was Meta’s $2 billion acquisition of Manus in 2025—a deal that reportedly spooked Beijing into tightening control over companies deemed strategically important. Moonshot AI is in the middle of raising $1 billion at an $18 billion valuation, but any U.S. firm that wants in must now ask Beijing first.

None of this is happening in a vacuum. The U.S. banned its own investors from backing Chinese AI and chip companies starting January 2025. China is now doing the same thing in reverse—not an outright ban, but a government permission slip requirement that achieves roughly the same effect. Both doors are closing simultaneously.

See you tomorrow,

Lily Mae Lazarus
X:@LilyMaeLazarus
Email:lily.lazarus@fortune.com
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Joey Abrams curated the deals section of today’s newsletter. Subscribe here.

VENTURE DEALS

- Decart, a San Francisco-based AI research lab, raised $300 million in funding. Radical Ventures led the round and was joined by NVIDIA, Atreides Management, Valor Equity, and others.

- Rapido, a Bengaluru, India-based ride-hailing app, raised $240 million in funding. Prosus led the round and was joined by existing investors. 

- Nof1, a New York City-based AI research lab focused on financial markets, raised $15 million. SUI Group and Karatage Opportunities led the round.

- Kin Health, a Los Angeles, Calif.-based AI notetaking app designed to be used by patients during doctor appointments, raised $9 million in seed funding. Maveron led the round and was joined by Town Hall Ventures, Flex Capital, and others.

PRIVATE EQUITY

- Salt Creek Capital acquired MML Diagnostics Packaging, a Troutdale, Ore.-based manufacturer and packager of single-use medical devices and In Vitro diagnostics. Financial terms were not disclosed.

OTHERS

- Gyde acquired We Know Medicare, a Sammamish, Wash.-based Medicare insurance agency. Financial terms were not disclosed.

FUNDS + FUNDS OF FUNDS

- Lauxera Capital Partners, a San Francisco and Paris, France-based growth equity firm, raised €520 million ($605 million) for its second fund focused on health tech companies.

- Playground Global, a Palo Alto, Calif.-based venture capital firm, raised $475 million for its fourth fund focused on deep tech companies.

PEOPLE

- Middleground Capital, a Lexington, Ky.-based private equity firm, promoted Roland Veldhuijzen van Zanten to Managing Director.