DeepSeek fundraising frenzy spawns costly shadow market

Investors clamouring to participate in DeepSeek’s latest fundraising are paying unusually high fees to access investment vehicles created by groups allocated stakes in the Chinese AI group.
The Hangzhou-based AI lab, which shot to global prominence last year with the release of its R1 reasoning model, is being valued at about $71bn before the new investment, according to three people with knowledge of the matter.

The ongoing fundraising comes just a month after DeepSeek raised $7bn to value the company at $52bn in its initial financing round.

Demand has been intense despite unusually restrictive terms, including a five-year lock-up and no voting rights, as DeepSeek seeks to retain control over its development with minimal shareholder pressure, the people said.

The rush for exposure has spawned a secondary market in special-purpose vehicles, with some investors being offered access through multiple layers of funds charging sharply escalating fees, the people added.

One family office investor in Hong Kong said he recently received information through eight different vehicles created for DeepSeek’s ongoing round.

Pre-investment fees ranged from 6 per cent for the first layer, and 8 per cent for the second, with a Rmb10mn ($1.5mn) minimum investment. Typical charges for a vehicle set up for similar purposes are a 2 per cent pre-investment fee and 20 per cent carry, referring to the management’s share of investment profits.

These vehicles have been created by investors who obtained allocations of DeepSeek shares but want to distribute risk by bringing in external money.

Three other investors said they were offered shares in even lower-tier vehicles with pre-investment fees exceeding 15 per cent and carry as high as 40 per cent.

One of the investors who decided not to participate said: “In past weeks I received almost daily WeChat messages and emails offering different DeepSeek [special-purpose vehicle] opportunities — and all are charging insane amounts of fees. The whole process is chaotic to say the least.”

DeepSeek is not involved in such arrangements and may only recently have become aware of them, according to one of the people close to the team.

Founder Liang Wenfeng is now involved in reviewing investor line-ups, including verifying the limited partners behind contributing funds, to prevent shares from ending up with unknown entities, according to the person.

Some are expected to be ejected as a convoluted shareholder structure leads to corporate governance risks that would complicate its planned IPO on one of China’s main stock markets.

“A lot of it may be happening because DeepSeek is not experienced in fundraising,” said the person. “They still don’t have a CFO and proper management of investor relations. At the same time, so many people want to get in this round.”

When DeepSeek opened its first funding round earlier this year, it initially gave just one email address to interested funds to submit the amount they were willing to commit, said two investors. Potential investors then met with a representative from its finance team, who gave out a standardised information package with little additional explanation.

DeepSeek has not held a roadshow or the management meetings with investors that are common during fundraisings.

Liang held an online conference call with a group of potential investors in the first round. A transcript was then leaked despite a confidentiality agreement, upsetting the founder, according to the person close to the team.

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Of the $7bn raised in the first round, Liang himself put in about $3bn as the largest investor, the FT previously reported.

Other investors included battery maker CATL and tech groups Tencent, JD.com and NetEase. China’s state-backed national AI fund also became a minority shareholder.

While the line-up for the new fundraising is yet to be finalised, many of the first-round investors are expected to participate again, according to people close to the situation. Several local government-backed funds are also expected to invest.

DeepSeek’s annual recurring revenue reached about $500mn last month, according to people briefed on its finances. They said spending on AI infrastructure this year has already reached $1.6bn — almost 10 times the figure for all of 2025.

“Everyone is banking on a blockbuster IPO soon,” said one investor who has committed to this round.

DeepSeek did not respond to a request for comment.

Additional reporting by William Sandlund in Hong Kong