In discussions that may lead to a substantial investment, Google, a subsidiary of Alphabet, is reportedly considering injecting hundreds of millions of dollars into Character.AI, a rapidly expanding startup specialising in artificial intelligence chatbots. Sources familiar with the matter informed Reuters that Character.AI is seeking capital to enhance its model training capabilities and meet growing user demands.
The potential investment, which might take the form of convertible notes as per a third source, aims to strengthen the existing collaboration between Character.AI and Google. The startup currently utilises Google's cloud services and Tensor Processing Units (TPUs) for model training. Both Alphabet's Google and Character AI declined to comment on the matter when approached.
Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI enables users to engage in conversations with virtual representations of celebrities such as Billie Eilish or anime characters. Additionally, users have the option to create their own chatbots and AI assistants. While the platform is free to use, a subscription model is available at $9.99 per month for users who wish to bypass virtual queues for chatbot access.
Character.AI's diverse range of chatbots, offering various roles and tones, has resonated particularly well with the 18 to 24 age group, constituting approximately 60 per cent of the website's traffic, according to Similarweb data. The company aims to position itself as a provider of entertaining personal AI companions, distinguishing itself from competitors like OpenAI's ChatGPT and Google's Bard.
The startup reported 100 million monthly visits to its website in the first six months since its launch. In addition to discussions with Google, Character.AI is reportedly in talks with venture capital investors to secure equity funding, a move that could potentially value the company at over $5 billion. In March, the startup raised $150 million in a funding round led by Andreessen Horowitz, valuing the company at $1 billion.
While negotiations with Google are ongoing, sources caution that the terms of the deal may evolve. Google has been actively investing in AI startups, including a $2 billion investment in model maker Anthropic through convertible notes, in addition to its prior equity investment. This trend aligns with the broader industry pattern where major tech cloud service providers, such as Microsoft and Amazon, are entering partnerships with AI companies to incentivise the use of specific cloud services or hardware in the competitive landscape of model development and consumer service. The US Federal Trade Commission is reportedly examining such investments in AI startups for potential anti-competitive behaviours, as highlighted by Chair Lina Khan in a recent event in San Francisco.