Delphi Labs Founder: After Two Weeks Deep in China's AI Scene, Shenzhen's Hardware Amazed Me, Software Valuations Terrified Me

Author: José Maria Macedo, Co-founder of Delphi Labs

Compiled by: Deep潮 TechFlow

Deep潮 Introduction: Delphi Labs founder spent two weeks intensively visiting China’s AI ecosystem, meeting numerous founders, investors, and CEOs of publicly listed companies.

His conclusion is surprising: more optimistic about hardware than expected, more pessimistic about software than expected, and his observations of Chinese founders have overturned his previous perceptions.

The article also covers hot topics such as valuation bubbles, humanoid robot tracks, and information asymmetry between China and the West.

Full text below:

I spent two weeks in China, meeting a large number of founders, VCs, and CEOs of publicly listed companies in the AI ecosystem. Before going, I was bullish on this ecosystem, expecting to see world-class AI talent working at valuations far below Western standards.

By the end, my view changed—becoming more specific: hardware is stronger than I imagined, software is weaker, and some observations about Chinese founders surprised me.

Founders’ Issues

The excellent founders I’ve invested in share a common trait: independent thinking, rebelliousness, extreme focus, and obsession. They don’t follow rules. They keep asking “why,” refusing to accept secondhand wisdom. Their decisions may seem inexplicable to outsiders, but they see them as natural. They possess an internal, unstoppable intensity, often expressed as long-term obsession and excellence. As a VC meeting many smart people daily, I can spot these individuals easily because their life trajectories have a distinct “sharpness.”

Many founders I met in China are of a different type, which surprised me.

They are extremely talented—top universities, backgrounds at ByteDance or DJI, published papers in Nature, multiple patents. In the West, these achievements are only held by top-tier technical talent; in China, they are the entry ticket. They also work harder than almost anyone I’ve seen. We held meetings at various times, including weekends, rushing across cities. One founder even came to see us on the day his wife was giving birth.

But independent thinking, rebellious spirit, and a vision from 0 to 1—these are harder to find. The backgrounds of founders are highly similar, their pitches more conservative, often upgrades of existing products (impressive V2), rather than truly original bets. Given China’s large pool of technical talent, I expected to meet more people with “ideas I’ve never heard before.”

My interpretation is: China’s education system cultivates excellence but doesn’t leave enough room for deviation. The output is top-tier executors skilled at solving known problems, not those who come with a problem no one knows exists.

VCs Reinforcing This Pattern

More interestingly, local investors are intensifying this trend.

Most Chinese funds’ investment logic is based on one premise: investing in the best people from ByteDance or DJI. They look at resumes, not brilliance; backgrounds, not beliefs. The VC profile is similar—former employees of big companies, consulting, or investment banks, much like European VCs a decade ago.

Ironically, the Chinese founders who have built truly great companies mostly never worked at big corporations. Jack Ma was an English teacher, admitted twice before passing the college entrance exam. Ren Zhengfei founded Huawei at 43, after serving in the military. Liu Qiangdong started selling goods at a market. Wang Xing dropped out of college to start a business. Recently, Liang Wenfeng founded DeepSeek, never having worked outside his own company. These are outliers—people without “standard resumes”—precisely those the current investment system tends to overlook.

Finding these kinds of people offers real alpha, but few are currently looking there.

Shenzhen and Hardware Ecosystem

What impressed me most in China wasn’t startup pitch events.

It was Shenzhen’s underground hardware workshops—engineers systematically acquiring high-end Western products, disassembling each component, reverse engineering everything with extreme rigor. When I left, I wasn’t sure if most Western hardware founders even understood what they’re competing against. The network effects here are not theoretical—they are physical, dense, built over decades.

The entrepreneurs we met confirmed this: over 70% of hardware investments come from the Greater Bay Area, nearly 100% from China—meaning iteration cycles are unmatched by Western hardware companies.

Most founders I met are using DJI’s approach: creating consumer hardware in niche areas—electric wheelchairs, lawnmowers, next-gen fitness equipment—reaching 8 to 9 figures in revenue (USD), then leveraging customer base or underlying technology to expand into adjacent categories. Some companies are already much bigger than you’d think. The strongest I saw was Bambu Lab, a 3D printing company most Westerners haven’t heard of, reportedly earning $500 million annually, doubling every year.

Skeptical of Chinese Software

When I left, my doubts about Chinese software opportunities deepened.

On the model level, China’s open-source efforts are strong, but closed-source models still lag significantly behind the best in the West—and the gap may be widening. Capital expenditure gaps are huge. GPU access remains limited. Western labs are increasingly cracking down on distillation. Revenue figures tell the story: Anthropic reportedly generated $6 billion ARR in February alone. China’s top model companies have ARR in the tens of millions of dollars.

In software startups, the mainstream profile is PMs and researchers from ByteDance, developing agentic or ambient consumer software for Western markets. Talent is indeed strong, but many of these products fall within the scope of functionalities that large labs would release natively—one release could render them obsolete. I was also surprised by China’s lack of large, fast-growing private software companies. In the West, besides model companies, there are startups with nine- or even ten-figure ARR, growing rapidly—Cursor, Loveable, ElevenLabs, Harvey, Glean. Such breakthrough private software companies are almost nonexistent in China—except for a few like HeyGen, Manus, GenSpark, which after starting up, have all left.

Valuation Bubble

Despite the poor outlook for software, the bubble is real—both early and late stage.

Early-stage, top talent from ByteDance, DeepSeek, and Yue Zhi Anmian is indeed much cheaper than comparable US talent, but median valuations are converging. Consumer startups with no product often have valuations of $100-200 million. Pre-seed and Series A rounds exceeding $30 million are common.

Late-stage valuations are even harder to justify. MiniMax is valued at around $40 billion in the public market, with ARR under $100 million—about 400 times revenue. Zhipu is roughly $25 billion with $50 million ARR. For comparison: OpenAI’s highest valuation rounds are around 66x ARR, Anthropic about 61x.

Private model companies like Yue Zhi Anmian are using these public market benchmarks for fundraising—rising from $6 billion to $10 billion, then to $18 billion within months. Crypto investors are familiar with this pattern: comparing private valuations to “pre-unlock” public market prices. Additionally, Zhipu and MiniMax can sustain these levels partly because they are currently the only ways to gain exposure to the “Chinese AI narrative,” which itself carries a premium. But as more companies go public, this premium will be diluted. The IPO window is also unpredictable—shutting suddenly without warning. No one can guarantee you’ll have time to exit before the valuation gap narrows.

Humanoid robot track faces a similar situation. China has about 200 humanoid robot companies, around 20 with over $100 million in funding, several valued in the billions—most with no revenue, planning IPOs in Hong Kong around 2026 or 2027. If this market is real, China’s hardware advantage could make the long-term landscape clearer. But commercialization may lag far behind current funding pace, and I doubt Hong Kong can sustain so many humanoid robot companies valued in the billions waiting for IPO. I’m currently avoiding this sector.

Notable Information Asymmetry

One thing that surprised me: almost every founder I met is initially targeting global markets before China. They use Claude Code, watch Dwarkesh’s podcasts, and are well-versed in San Francisco’s startup ecosystem—often more than Western investors who haven’t been paying close attention.

Western hostility toward China is clearly greater than China’s toward the West. Chinese founders see no contradiction in combining China’s engineering execution and hardware depth with Western go-to-market and product thinking. When this combination forms within a capable founding team, truly remarkable companies can emerge.

Finding these founders—those who don’t fit the “standard resume template” optimized by local VCs—is what we are working on now.

Special thanks to @woutergort for opening his excellent Chinese network, @PonderingDurian for organizing this trip, and Claude for patiently editing my ramblings on the plane.