A CHINESE startup founded by computer scientist Lee Kai-Fu has become a unicorn in less than eight months on the strength of a new open-source artificial intelligence (AI) model that outstrips Silicon Valley’s best, on at least certain metrics.

The company, 01.AI, has reached a valuation of more than US$1 billion after a funding round that included Alibaba Group Holding’s cloud unit, Lee said. The chief executive officer of venture firm Sinovation Ventures will also be the CEO of the new startup. He began assembling the team for 01.AI in March and started operations in June.

The Beijing startup’s open-sourced, foundational large language model, Yi-34B, is now available to developers around the world in Chinese and English. Large language models (LLMs) are computer algorithms trained on large quantities of data to read, understand and produce human-like text, images and code.

On key metrics, Yi-34B outperforms leading open-source models already on the market, including Meta Platforms’s well-regarded Llama 2. Hugging Face, which runs leaderboards for the best-performing LLMs in various categories, posted evaluations over the weekend ranking the Chinese model first for what’s known as pre-trained base LLMs.

“Llama 2 has been the gold standard and a big contribution to the open-source community,” Lee, 61, said. “We want to provide a superior alternative not just for China but for the global market.”

San Francisco-based OpenAI set off a frenzy of interest in AI after it unveiled its ChatGPT chatbot last year. Alphabet, Microsoft and Meta have poured billions into research and development, seeking leadership in the emergent field of generative AI and beyond. Elon Musk just unveiled a chatbot called Grok.

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In China, tech giants and entrepreneurs have also jumped into the field, with search leader Baidu showcasing a version of its Ernie LLM it claimed was on par with OpenAI’s technology. Alibaba has backed at least three ventures in the space, including 01.AI. The two countries’ AI companies largely do not compete with each other because American technologies are not available in China.

Still, growing political tensions between the US and China have complicated the development of AI. US President Joe Biden’s administration banned the sale of Nvidia’s most advanced AI semiconductors to Chinese customers last year, citing national security concerns that the technology could be used to train AI models for military applications. Last month, the US tightened those constraints even further, barring Nvidia from selling slightly less advanced chips it had designed specifically for China.

Lee called the situation “regrettable” but said 01.AI stockpiled the chips it needs for the foreseeable future. The startup began amassing the semiconductors earlier this year, going as far as borrowing money from Sinovation Ventures for the purchases.

“We basically bet the farm and overspent our original bank account,” he said. “We felt we had to do this.”

Lee, who worked at Google, Microsoft and Apple before moving into venture capital, has built a team of more than 100 people at 01.AI, drawing former colleagues from US companies and Chinese nationals who have been working overseas. The group includes not just AI specialists, he said, but experienced business people who can help with everything from mergers and acquisitions to an initial public offering.

01.AI is already plotting its business strategy beyond the open-source model just introduced. The startup will work with customers on proprietary alternatives, tailored for a particular industry or competitive situation. For example, Yi-34B gets its name from the 34 billion parameters used in training, but the startup is already working on a 100-billion-plus parameter model.

“Our proprietary model will be benchmarked with GPT-4,” said Lee, referring to OpenAI’s LLM.

Offering a system in English and Chinese will be an advantage for global companies such as banks, insurers and trading companies, he said. The startup plans to add more languages in the future.

Lee’s work on AI dates back decades. In his 1982 application to graduate school at Carnegie Mellon University, he wrote that he wanted to devote his life to AI research because the technology would help humans understand themselves better. He went on to write two best-selling books, AI Superpowers: China, Silicon Valley and the New World Order and AI 2041: Ten Visions for Our Future.

“It’s the biggest breakthrough for humanity,” Lee said. “It’s also the final step to understanding ourselves.”

He said he frequently wondered whether the technology’s promise would be realised during his lifetime – until he saw the power of the latest generation of LLMs. He decided to depart from his usual role as a venture capitalist and become a startup CEO because of the promise of the technology and the opportunity to connect the dots from his roles as a computer scientist, author and executive.

01.AI opted to build an open-source model because the vast majority of AI developers cannot afford or do not need the largest, most expensive models. Open source AI systems are like open source software, where the source code can be modified and enhanced.

The size of the just-launched AI system, 34 billion parameters, was carefully chosen so that it can run on computers that are not prohibitively expensive. The company is also releasing a 6B model to appeal to a broader swath of developers. “It’s a highly calculated decision,” Lee said. “The world doesn’t need another arbitrary model, the world needs us.”

Lee said he has gotten some questions from his venture firm’s limited partners about how he will balance his dual CEO roles. He points out that if he spends 40 hours a week on Sinovation, there’s another 128 hours weekly. “I have 86 more hours to work on 01.AI without neglecting my Sinovation duties,” he said, suggesting he may allocate six hours a day to sleep and everything else in his life. BLOOMBERG