Google in Exclusive Talks to Invest in Character.AI, a Promising AI Startup

An illuminated Google logo shines brightly inside an office building in Zurich, Switzerland, as captured on December 5, 2018. REUTERS/Arnd Wiegmann/File Photo

Alphabet’s (GOOGL.O) Google is in discussions to make a substantial investment in Character.AI, a rapidly expanding artificial intelligence chatbot startup that is seeking funds to train models and meet user demand, according to sources familiar with the matter who spoke to Reuters.

Sources revealed that the investment, which might be structured as convertible notes, could potentially reach hundreds of millions of dollars and will further deepen the existing partnership between Character.AI and Google. The chatbot startup currently leverages Google’s cloud services and Tensor Processing Units (TPUs) in training models.

Both Google and Character AI have declined to comment on the ongoing discussions.

Co-founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI provides a platform for users to interact with virtual versions of celebrities such as Billie Eilish and anime characters. In addition, users can create their own chatbots and AI assistants. The company offers a subscription model with a monthly fee of $9.99 to enable users to access chatbots without waiting in line.

Character.AI has successfully captured the attention of users in the 18 to 24 age range, driving about 60% of its website traffic, according to data from Similarweb. The company aims to stand out as a unique provider of fun and engaging personal AI companions amidst competition from other AI chatbots.

The company has reported attracting 100 million monthly visits to its website within the first six months of its launch.

Sources also revealed that Character.AI is considering raising equity funding from venture capital investors, which could potentially value the company at over $5 billion. The company previously secured $150 million in a funding round led by Andreessen Horowitz, with a valuation of $1 billion.

Recent discussions with Google and other potential investors are ongoing, and the terms of the deals remain subject to change.

It is worth noting that Google has been actively investing in AI startups, with a $2 billion investment in model maker Anthropic in the form of convertible notes. This trend reflects the continued race among big tech cloud services providers to entice AI companies to utilize their cloud or hardware.

U.S. Federal Trade Commission chair Lina Khan has recently expressed the agency’s intention to investigate cloud provider investments in AI startups to examine potential anti-competitive behaviors.

Reporting by Krystal Hu in New York, additional reporting by Anna Tong and Jeffrey Dastin; Editing by Bill Berkrot

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Krystal reports on venture capital and startups for Reuters. She covers Silicon Valley and beyond through the lens of money and characters, with a focus on growth-stage startups, tech investments, and AI. She has previously covered M&A for Reuters, breaking stories on Trump’s SPAC and Elon Musk’s Twitter financing. Historically, she has reported on Amazon for Yahoo Finance, and her investigation of the company’s retail practice was cited by lawmakers in Congress. Krystal started a career in journalism writing about tech and politics in China. She holds a master’s degree from New York University and enjoys a scoop of Matcha ice cream as much as getting a scoop at work.

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