Original text: Delphi LabsCofounder, @ZeMariaMacedo

Compiled by: Big Pincer | PANews Lobster

I flew to China with high expectations, thinking I would see greatly underestimated geniuses changing the world at a fraction of the cost. Two weeks later, I returned with a more complex answer:

Chinese hardware is quietly winning a war that Westerners aren’t even aware has begun; however, in the software field, valuation bubbles and homogenized founder archetypes are turning an ecology that should have exploded into another game of hot potato.

I spent two weeks in China, visiting founders, venture capitalists, and CEOs of public companies in the AI ecosystem. Before entering, I was optimistic about this ecosystem, expecting to find world-class AI talents making significant strides at valuations far lower than the West.

Upon leaving, my views became more nuanced: more optimistic about hardware than expected, more pessimistic about software, and I formed some opinions about Chinese founders that surprised even myself.

Founder Issues

The outstanding founders I have invested in share a common characteristic: independent thinking, rebellious spirit, high focus, and near obsession. They do not follow the crowd, constantly ask "why," and refuse to accept secondhand wisdom. Their decisions may seem inexplicable to outsiders, but they are self-evident to them. They possess an intense drive that comes from deep within and manifests as a life filled with obsession and excellence. Their life trajectories have a sense of "edges," easily identifiable among the highly intelligent people I engage with as a VC.

Many Chinese founders I encountered, however, are a different type—this surprised me.

They are exceptionally talented—graduating from top universities, previously working at ByteDance or DJI, publishing papers in Nature, and holding multiple patents. These achievements, which only the top technical talents in the West can attain, are merely entry tickets here. Their diligence nearly exceeds that of anyone I have ever met. We meet at any time, on weekends, and across cities. One founder even came to meet us the day his wife was in labor!

However, independent thinking, rebellious spirit, and a vision from zero to one—these are hard to find. The backgrounds of different founders are highly similar, their business plans are more conservative and stable, and their ideas are often improved versions of existing things rather than truly original bets. Considering the vast pool of technical talent that China has cultivated, I expected to encounter more people proposing ideas I had never heard of.

My conclusion is: China's education system can produce excellence, but there is not enough space for "deviation." It produces founders who can execute known problems to the extreme, rather than those who emerge with a problem that "no one has realized is a problem."

Venture Capital is Reinforcing This Model

Interestingly, local investors are actively amplifying this trend.

Most Chinese funds build their entire investment logic on investing in the best alumni from ByteDance or DJI—favoring names over individuality, credentials over judgment. The composition of VCs mirrors this as well: most come from backgrounds in large companies, consulting, or investment banking, resembling European VCs from a decade ago.

Ironically, the historically best Chinese founders—those who truly established intergenerational companies—never worked for large firms. Jack Ma was an English teacher who failed the college entrance exam twice; Ren Zhengfei founded Huawei only after retiring from the military at 43; Liu Qiangdong started by selling goods on the street to establish JD; and Wang Xing dropped out of his doctoral program to start from scratch. The recent Liang Wenfeng never worked anywhere before starting DeepSeek, only staying with his own company. These individuals are outliers, lacking impressive resumes—precisely the type of people the current system tends to overlook.

Finding these individuals is where true excess returns lie, but in my view, almost no one is looking in that direction right now.

Shenzhen and the Hardware Ecosystem

In China, what amazes me most is not any startup pitch.

Rather, it is Shenzhen's "hardware underground world"—where engineers systematically procure high-end Western products, disassembling them piece by piece with meticulous precision to conduct reverse engineering. When I left, I was genuinely uncertain whether most Western hardware founders truly understand what they are competing against. The network effects here are not theoretical; they are real, intertwined, and accumulated over decades.

The entrepreneurs we met provided data to substantiate this: over 70% of the hardware raw materials come from the Greater Bay Area, nearly 100% from domestic sources—this enables iteration cycles that far exceed the capabilities of Western hardware companies.

The majority of founders I encountered are following DJI's approach: doing consumer hardware in a niche segment—electric wheelchairs, lawn mowing robots, next-generation fitness equipment—scaling revenue to eight or nine figures, then expanding into adjacent categories using their customer base or underlying technology. Some of these companies are already much larger than you can imagine. The most impressive company I encountered is Bambu, a 3D printing company that most Westerners have never heard of, reportedly achieving annual profits of $500 million and doubling every year.

Pessimism About Chinese Software

Upon leaving, I was even more skeptical about the opportunities in the Chinese software field than when I arrived.

In terms of model level, China's open-source results are indeed impressive—but closed-source models show significant gaps compared to the strongest Western models, and this gap is likely to continue to widen. The gap in capital expenditure is enormous, GPU acquisition remains constrained, and Western labs are intensifying efforts to suppress model distillation. Revenue data already reflects the problem: it is reported that Anthropic achieved $6 billion in February alone. The best ARR for Chinese models is still in the tens of millions.

In terms of software startups, the mainstream profile consists of former product managers and researchers from ByteDance, working on intelligent agents or consumer software for the Western market.

Talent is real, but most of these products fall within the functional range that large laboratories can natively integrate—risking losing their footing with any product release. I am also shocked by the overall lack of large-scale, rapid-growth private software companies in China.

In the West, besides model companies, several startups have already achieved ARR of hundreds of millions to billions with astonishing growth—Cursor, Loveable, ElevenLabs, Harvey, Glean. Breakthrough private software companies at this level practically do not exist in China—and the few exceptions, such as HeyGen, Manus, and GenSpark, once finding breakthroughs, ultimately choose to leave.

Valuation Bubble

Despite the unfavorable situation in the software field, bubbles are very real—both in early and late stages.

In the early stage, although the costs of top talents from ByteDance, DeepSeek, and Dark Side of the Moon are still significantly lower than their American equivalents, median valuations have tended to converge. It is now commonplace for consumer startups pre-product to have valuations between $100 million and $200 million, with seed rounds exceeding $30 million being quite frequent.

In the late stage, the numbers become even harder to justify. MiniMax is valued at around $40 billion on the public market, with an ARR of less than $100 million—around a 400x price-to-sales ratio. Zhiyu AI is valued at about $25 billion, with revenue of about $50 million. In contrast, OpenAI's peak valuation during fundraising was about 66 times its ARR, and Anthropic about 61 times.

Private model companies like Moonshot are using these publicly listed companies as benchmarks, rapidly securing funding at valuations of $6 billion, $10 billion, and $18 billion within just a few months. People in the crypto circle should be familiar with this dynamic—investors are comparing private valuations with pre-unlock public stock prices.

Furthermore, part of the reason that supports Zhiyu and MiniMax in maintaining their current valuations is that they are currently the only route to gaining exposure to the narrative of Chinese AI, which inherently carries a premium. However, as more companies go public and this scarcity is diluted, the situation will change. Finally, there is a common practice of IPO windows closing rapidly and without warning—by the time you finish arbitraging, the benchmarks you are referencing have most likely changed, and there is no guarantee of that.

The humanoid robot sector presents a similar scenario. There are approximately 200 humanoid robot companies in China, with about 20 having raised over $100 million, several valued at billions—almost all are at the pre-revenue stage, most planning to list on the Hong Kong Stock Exchange in 2026 or 2027. If this market is real, China’s dominance in hardware makes a long-term path clear. However, commercial realization may be much slower than the current pace of financing suggests, and I deeply doubt whether the Hong Kong market can accommodate the many billions-level humanoid robot companies currently in the queue. I have temporarily chosen to wait and see.

Asymmetries Worth Noting

One thing I did not anticipate is that almost every founder I encountered prioritizes laying out global markets rather than the Chinese market. They use Claude Code, pay attention to Dwarkesh, and are very familiar with the startup ecosystem in San Francisco, often knowing more than Western investors who did not pay close attention.

The hostility the West has towards China far exceeds the hostility China has towards the West. Chinese founders do not feel there is any contradiction in combining China's engineering execution and hardware depth with the West's market development capabilities and product vision. When this combination comes to fruition within the right founding teams, it will give rise to some truly remarkable companies.

Finding those founders—those who do not fit the "credential template" optimized by the local VC ecosystem—is our focus.

Special thanks @woutergort for opening up his amazing network in China to us, and thanks to @PonderingDurian for organizing this trip, and thanks to Claude for patiently helping me organize my scattered thoughts on the plane.

Note: This article was led by AI for compilation.

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