Moonshot AI: $3 billion valuation overshadowed by legal dispute with 5 key investors

Moonshot AI, a rapidly rising AI startup founded in 2023, has captured global attention with its advances in large language models and even more so with its meteoric valuation climb to $3 billion – yet its success is overshadowed by legal disputes.

Viral success of a second ventureIn early 2023, after OpenAI reignited public interest in artificial intelligence, a Beijing-based AI algorithm company named Moonshot AI was founded. The fledgling startup would soon make waves in AI and venture capital. On October 9, 2023, Moonshot AI announced a breakthrough in the long-text domain, unveiling Kimi Chat, the world’s first AI assistant capable of processing 200,000 Chinese characters in a single input, boasting the longest contextual capacity among commercialized large language models globally. By March 20, 2024, AI application trends had surged, and topics like “#Kimi concept stocks soar” trended on Chinese social media platform Weibo. According to Similarweb, Kimi Chat ranked third on China’s AI product list by user traffic in February, with its average daily active users increasing by 101.9% year-on-year. It also topped global growth rankings, maintaining its upward trend through the first two weeks of March.

The journey of Moonshot AI’s founder, Yang Zhilin, began in 2016, when he co-founded his first startup, Recurrent AI, at the age of 23. A Tsinghua University computer science graduate and a PhD candidate at Carnegie Mellon University’s Language Technologies Institute, Yang had contributed to projects at Google and China’s Pangu NLP. He later co-founded Recurrent AI with a group of fellow entrepreneurs.

In March 2023, as ChatGPT gained global popularity, Yang seized the opportunity in the large-scale AI model industry and founded Moonshot AI, focusing on general artificial intelligence.  Beyond his entrepreneurial pursuits, Yang was also a drummer in a band, and the company’s name (in Chinese) draws inspiration from Pink Floyd’s album “The Dark Side of the Moon”. 

Moonshot AI’s rapid fundraising pace and skyrocketing valuation have drawn widespread attention. In February 2024, the company raised over $1 billion in a funding round led by Alibaba, with participation from Sequoia Capital China, Meituan, and Xiaohongshu, pushing its valuation to $2.5 billion. In August, Moonshot AI announced a Series B round, securing over $300 million from investors including Tencent Investment, Gaorong Capital, and Alibaba, which raised its post-funding valuation to $3 billion.

Industry insiders reveal that several investment firms, confident in founder Yang, continued to back him when he launched Moonshot AI. Others, including GSR Ventures, did not keep pace. A year later, following Alibaba’s $1 billion investment and the company’s rising valuation, some of these firms reportedly raised objections, with accusations ranging from shareholder conflict to allegations of cashing out.

Adding a dramatic twist, Zhang Yutong, then a managing partner at GSR Ventures, played a pivotal role in the $1 billion February round. Reports suggest she was instrumental in facilitating Moonshot AI’s partnership with Alibaba, leading the effort from Singapore.

Entering arbitrationIn November, Moonshot AI’s co-founder and CTO, Zhang Yutao and Yang, were named in an arbitration case filed in Hong Kong by investors from their previous venture, Recurrent AI.

According to sources, the arbitration applicants comprise five of Recurrent AI’s seven investors: GSR Ventures, Jingya Capital, Boyu Capital, Huashan Capital, and Wanyu Capital. Sources familiar with the matter suggest that the arbitration stems from allegations that Yang and Zhang launched Moonshot AI and secured funding without obtaining consent waivers from Recurrent AI investors.

At the center of controversyZhang Yutong, an angel investor for Yang Zhilin, has played a pivotal role in both of his entrepreneurial ventures. In 2016, she invested in Recurrent AI. As a fellow Tsinghua University alumni, Zhang has a longstanding connection to Yang.  

Since joining GSR Ventures in 2011, Zhang built a reputation for identifying high-potential ventures, including investments in Xiaohongshu, now valued at $17 billion, and DeePhi Tech, acquired by Xilinx for $300 million in 2018. Her investment prowess led to her promotion to the role of GSR’s second-ever managing director (partner) in 2020, following Allen Zhu. 

In February 2024, Moonshot AI completed a funding round exceeding $1 billion, with media reports highlighting the pivotal role of Zhang Yutong, then a managing director (partner) at GSR Ventures. By April, it was reported that Zhang had departed GSR Ventures, citing personal career development plans. While rumors circulated that she might have joined Moonshot AI, the company said Zhang had not officially taken a position with them.  

On December 5, Zhu, managing director (partner) at GSR Ventures, posted an update on his Wechat Moment addressing recent arbitration. Zhu expressed willingness to waive claims against Yang and the founding team while accusing Zhang of violating business ethics, fiduciary duty, and even the law. Alleging that Zhang had been dismissed from GSR Ventures for deliberately concealing her ownership of 14% free shares in Moonshot AI, Zhu argued this action violated her fiduciary duty as a fund partner to Limited Partners and as a company board member to shareholders.  

Yang on the other hand defended Zhang, explaining that the shares granted to her were compensation for her long-term contributions to the company as a co-founder.

So far, Zhang, the investor at the center of the controversy, has made no public statement.

The dark side of the moonLooking back, it becomes evident that the current controversy surrounding Moonshot AI revolves around a dispute over equity. At the heart of this turmoil is Zhang, whose dual roles have raised questions about a potential overlap in timelines – specifically, whether Zhang, while serving as a General Partner role at GSR Ventures, had conflicting interests with Moonshot AI. This issue, tied to fiduciary duty, was what had sparked the recent upheaval. 

However, given seemingly contradictory reports and the absence of critical disclosures, Moonshot AI remains clouded in uncertainty, with key details not yet out in the open.