Despite the significant investment, Dark Side of the Moon is not yet under pressure to monetize. However, successfully commercializing its large model applications is crucial for investors to evaluate future returns.

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Following Alibaba, Tencent has also expressed interest in Dark Side of the Moon.

Recently, media reported that Dark Side of the Moon, a domestic AI unicorn, has completed a new round of funding exceeding $300 million. Investors in this round include Tencent, Gaorong Capital, and others.

Sources close to the company confirmed that Tencent's participation in this funding round is true. However, Dark Side of the Moon declined to comment on the funding news.

If this investment materializes, Dark Side of the Moon's valuation will soar past $3 billion, making it the most valuable startup in China's large model sector.

While capital is crucial for technological competition, and funding supports the computational power and talent necessary for large models, Dark Side of the Moon's concerns are gradually emerging amidst its high valuation and significant financial support.

Part.1

Dark Side of the Moon Leads in Valuation

Amid the current AI wave, Dark Side of the Moon is undoubtedly the most prominent startup, having secured multiple rounds of funding within less than a year and a half. Star investors and internet giants have scrambled to invest.

According to Tianyancha, Dark Side of the Moon received over $200 million in its angel round in June 2023 from investors including ZhenFund and Sequoia China, valued at $300 million. In July of the same year, the company received Series A funding from investors such as Meituan Dragonball and BlueRun Ventures.

However, the most notable funding round was the Series A+ in February this year, raising over $1 billion from investors including Sequoia China, RED, and Alibaba, with follow-on investments from existing shareholders. This funding round was the largest single round of funding for a Chinese large model startup since ChatGPT's emergence, propelling Dark Side of the Moon's valuation to $2.5 billion.

Notably, Alibaba was the first to close its $800 million investment, excluding additional investments from existing shareholders and those still in the investment process due to the Chinese New Year holiday.

In its May financial report, Alibaba disclosed investing approximately $800 million in Dark Side of the Moon during fiscal year 2024, acquiring approximately 36% equity. However, not all $800 million was in cash; part was settled through computing power provided by Alibaba Cloud, resulting in an actual cash investment of less than $600 million.

Since its inception, Dark Side of the Moon has undergone four funding rounds. If this latest funding materializes, its valuation will reach $3.3 billion, leading the "AI Six Dragons" and becoming the most valuable startup in China's large model sector. Other domestic AI unicorns with valuations exceeding RMB 20 billion include Zhipu AI and Baichuan Intelligence.

According to public data, there have been 107 funding events in the global AIGC sector this year, with 20 domestic large model companies raising over RMB 100 million each. Among the "New AI Six Dragons," ZeroOne, Baichuan Intelligence, Zhipu AI, Dark Side of the Moon, and Minimax have all raised over RMB 100 million this year. Jieyue Xingchen is also rumored to be raising a new round of funding valued at $2 billion in June this year.

It is worth mentioning that shortly after Dark Side of the Moon's funding news, media reported that Li Kaifu's AI startup ZeroOne had completed a new funding round worth hundreds of millions of dollars. According to insiders, participants in this round include international strategic investors and Southeast Asian conglomerates.

The renewed interest of capital in AI unicorns signals the imminent arrival of a new AI funding wave.

Pan Helin, a renowned economist and member of the Expert Committee of the Ministry of Industry and Information Technology's Information and Communication Economics, stated that unlike last year's funding wave, investors in large models this year are primarily focused on application deployment. For example, Dark Side of the Moon is favored due to the user growth of its Kimi, while Baichuan Intelligence is favored for its applications in industries and other vertical fields. Since AI large models ultimately rely on applications for monetization, investors prioritize the potential for future profitability of AI large model companies.

Part.2

Tencent and Alibaba Have Different Agendas

It is evident that both Tencent and Alibaba have invested in four leading domestic AI large model companies: Zhipu AI, MiniMax, Baichuan Intelligence, and Dark Side of the Moon. This phenomenon of both major tech giants investing in the same startups is relatively rare compared to the mobile internet startup era.

However, strategic considerations offer some insight.

As mentioned earlier, Alibaba's investment has given it nearly 40% equity in Dark Side of the Moon, leaving questions about how much equity remains in the hands of the company's founders. Historically, in industries that burn significant capital, company CEOs tend to hold limited equity by the time of IPO.

There are also valuation concerns and policy reasons. For domestic AI startups, Hong Kong is the only suitable listing market. However, uncertainties remain regarding the specific listing process and valuation. Previously, SenseTime's valuation was lower than that of current startups like Dark Side of the Moon and Zhipu AI, yet their current revenue scales pale in comparison to SenseTime's.

If Dark Side of the Moon is not ready for an IPO or lacks opportunities, acquisition is a likely path, as seen with some foreign unicorns. "After Alibaba invested so much, giving up so much equity, no one knows if Dark Side of the Moon will eventually be acquired," said a senior investor.

Given Tencent's and Alibaba's deep involvement with Dark Side of the Moon, Tencent's involvement is somewhat surprising. Choosing one giant often leads the other to hesitate. Compared to Alibaba Cloud, Tencent Cloud is less significant. Recently, an AI investor revealed that Tencent held an internal review meeting last year to "tighten unnecessary investments" after tightening game licenses. "If investing in new projects, we must calculate whether it outperforms repurchasing Tencent shares," they said. These factors make Tencent's investment in Dark Side of the Moon unusual.

However, it is understandable that among the major tech companies, Tencent cannot focus solely on its large model like ByteDance or Baidu. Instead, it hopes to achieve strategic goals through external investments. Tencent has already invested in Zhipu AI, Baichuan Intelligence, and MiniMax before Dark Side of the Moon. The Information, an authoritative Silicon Valley media outlet, suggested that this investment could pave the way for collaboration between WeChat and Dark Side of the Moon's chatbot.

Indeed, the popularity of Kimi, Dark Side of the Moon's voice assistant, has undoubtedly put pressure on Tencent, which dominates the social media landscape. Tencent Strategic Investments missed out on Zhang Yiming's ByteDance, and it doesn't want to repeat that mistake.

For Dark Side of the Moon, choosing not to take sides is the smartest move. Each major tech company has its advantages in specific areas, and startups strive to maintain good relations with all of them while open to collaborations. This is a mature business ecosystem and an inevitable choice.

Although Dark Side of the Moon remains enigmatic, it will eventually face challenges such as securing continued funding and overcoming commercialization difficulties for large model companies.

Part.3

Monetization Remains a Challenge

In terms of revenue, nearly all AI startups like Dark Side of the Moon are far from generating enough income to support their valuations. Finding a commercial path, especially for Dark Side of the Moon, which is betting on the consumer market, is particularly challenging.

Dark Side of the Moon's approach to C-end commercialization is characterized by its "super model" + "super app" strategy, a dual-drive model combining technology and product.

Initially known for its large model Kimi with exceptional long-text capabilities, Dark Side of the Moon launched Kimi Chat, utilizing immediate feedback from C-end users to iterate and optimize the product.

Data shows that from December 2023 to February 2024, Kimi's monthly active users were 508,300, 1,128,500, and 2,984,600, respectively. In February 2024, user numbers were nearly six times higher than in December 2023. Similar growth trends were observed on web and app platforms. On the web, daily active users on March 14 were 345,700, a significant increase from 127,900 on March 9. On the app, daily active users on March 16 were 50,000, up from under 20,000 on March 2.

While Kimi's numbers are growing, it's far from being a true super app. The industry consensus for a super app is that it must meet three criteria: high reliability, deep understanding of user intent, and a DAU between 30 million and 300 million. Kimi falls short in all three areas.

For tool-based AI applications, embedding within other app ecosystems as a smart assistant is a crucial direction. Companies like Baidu, Tencent, iFLYTEK, ByteDance, and 360 have all launched AI assistants, indicating a focus on C-end applications. Leveraging their ecosystem and user base advantages, these giants are more likely to gain user acceptance in the C-end market.

It's not that Kimi lacks the potential to become a super app; rather, established giants with existing super apps and ecosystems have a head start. For example, Aurora Mobile's Yuehu Data released a monthly report on China's generative AI market in May 2024, revealing active mobile users in May. Wenxin Yiyan App ranked first, Doubao secured second place with ByteDance's support, and Kimi placed fifth.

Regarding specific business models, two popular approaches exist: subscription and commission. Subscription, based on user count, fails to generate significant commercial value and is unlikely to be the ultimate model. Commission, especially advertising, is more predictable but limited by human attention and time.

Essentially, the commercialization path for AI large model startups is straightforward, leading to intense competition. Investors and the market expect these companies to deliver new products or compelling results, such as user growth, revenue, and influence, every quarter or half-year. This is a primary reason why Dark Side of the Moon keeps Kimi active.

It's undeniable that Dark Side of the Moon has achieved notable success in the C-end market with Kimi. As technology advances and the market matures, Kimi, as a flagship product, demonstrates immense potential and appeal. However, commercial success requires time to cultivate the market, optimize products, and build ecosystems. In this vast market with promising prospects, Dark Side of the Moon faces both opportunities and challenges.