Tencent, Alibaba Place Bets on Startups Racing to Become China’s OpenAI
In China, dozens of startups have been competing to develop conversational artificial intelligence for the Chinese market. Now some are starting to pull ahead, in part due to backing from tech giants with large cloud operations like Tencent and Alibaba.
Among them is Moonshot AI, developer of a chatbot that can process millions of Chinese characters in a single prompt. The one-year-old startup’s executives have been in talks with investors about raising money at a $3 billion valuation, before the investment, from investors including WeChat operator Tencent, according to a person involved in the discussions. Just a few months ago, the Beijing-based startup raised $1 billion from Alibaba and others at a pre-money valuation of about $1.5 billion, already giving it one of the biggest war chests among Chinese AI developers, according to the person.
The Takeaway
• Beijing-based Moonshot AI is in talks with investors including Tencent
• The startup is raising money at $3 billion pre-money valuation
• The talks come just a few months after a $1 billion funding round led by Alibaba
Moonshot’s capital raising plans point to a shift happening among China’s AI startups. Unlike in the U.S., where only a handful of companies including OpenAI, Google and Anthropic have emerged as leaders in developing the most advanced LLMs, no Chinese tech company has taken a significant lead in AI development. And China blocks OpenAI and other U.S. competitors by requiring government approvals for generative AI products. This opportunity led Chinese founders to launch dozens of startups in what Chinese media have dubbed the “hundred-model war.”
That field is starting to narrow as Alibaba and Tencent, which operate major cloud computing businesses that can service these AI models, put their weight behind certain startups in addition to building their own models. Alibaba has invested in Chinese startups that develop LLMs such as MiniMax, 01.AI, Zhipu AI and Baichuan AI. It’s also invested in Moonshot, in part with cloud credits for Alibaba Cloud.
Tencent is likely to invest in Moonshot, the person said. That stake could pave the way for deeper collaborations between Tencent’s popular WeChat messaging app and Moonshot AI’s chatbot. Tencent has already backed MiniMax, Zhipu AI and Baichuan AI.
A Tencent spokesperson declined to comment. Moonshot AI’s founder didn’t respond to an emailed request for comment.
For Chinese LLM developers, chatbots’ ability to process and summarize long texts—such as books, research reports and meeting notes —has become a key battleground. That’s similar to a feature Google touted when it announced a new version of its Gemini LLM in February.
Moonshot AI has an edge in this aspect. When the startup launched the first version of its Kimi chatbot in October, it was capable of processing up to 200,000 Chinese characters in a single prompt. Then in March, it unveiled an upgraded version of Kimi that can handle 2 million characters. During the week when the new version became available, Kimi's website traffic surpassed that of Ernie Bot, a popular AI chatbot from search giant Baidu, making it the most visited in China, according to web analytics service Similarweb. Since then, Baidu and Alibaba have upgraded their own LLMs and introduced long-text processing features.
The company, whose Chinese name, Yue Zhi An Mian, means “the dark side of the moon,” has also developed voice and coding assistants—two areas where Google and OpenAI are also competing. But Moonshot AI is mostly known for its text chatbot, which it’s been offering for free. Similar to OpenAI, it's likely to introduce a paid version for more active users, though it’s not clear when. However, business customers and developers in China are more reluctant to pay a premium for software than their U.S. counterparts.
Yang Zhilin, a young assistant professor at Tsinghua University, founded Moonshot after receiving his doctorate from the School of Computer Science at Carnegie Mellon University and working in the AI labs of both Google and Meta Platforms, according to his profile on code-sharing site GitHub. China’s HongShan, formerly known as Sequoia Capital China, was an early investor in the startup, The Information reported in April 2023.