Character.AI in Early Talks for Funding at More Than $5 Billion Valuation

The chatbot startup has discussed raising hundreds of millions from investors.

(Bloomberg) — Character.AI, a startup offering chatbots that can impersonate virtually anyone or anything, is in early talks to raise hundreds of millions of dollars in new funding that could value it at more than $5 billion, according to people familiar with the matter.

Character.AI was an early darling in the field of generative artificial intelligence, and has received significant inbound interest from investors, said the people, who asked not to be identified discussing private information. The deal talks are early and could still fall apart, they said.

A spokesman for the company declined to comment on a valuation for the startup, but said that Character.AI has achieved “significant milestones” after raising $150 million from investors earlier this year. “As our community of users continues to rapidly grow, so does interest in being part of the revolutionary technology we are building and delivering,” he said. “While we continue to have productive conversations, any speculation about our fundraising or valuation is just that.”

A deal could value the startup in the range of $5 billion to $6 billion, the people said. At one point in early conversations with investors, a valuation of as much as $10 billion was discussed, two of the people said. Even the lower price tag, though, would still be a major jump from the $1 billion value in the company’s last funding round. 

Character.AI was founded by former Google employees Noam Shazeer and Daniel De Freitas. Its service allows people to create a range of chatbots capable of having text conversations. The startup’s users have sent tens of millions of messages to characters like Super Mario, based on the Nintendo 64 character. The characters then offer AI-generated responses, for example in Mario’s case: “Hello! It’s-a me, Mario!”

Founded in 2021, Character.AI is still in its early days and its business model could evolve. Earlier this year, the company began offering a $10 monthly subscription for a service, called, that lets users access its messaging service faster. It’s one of a growing number of companies developing generative AI, software that takes in user inputs and generates new content like text or images.

As AI valuations climb, some investors have speculated about whether venture capital firms should fund large-language models, like the one built by Character.AI, given the gargantuan computing costs of developing and operating this kind of specialized technology. Some in the industry have argued that it makes more sense for those startups to seek backing from strategic investors, such as Microsoft Corp., which is investing more than $10 billion in OpenAI.

Tech news site the Information reported in July that Character.AI was talking to investors about a fresh round of funding.

–With assistance from Rachel Metz, Mark Bergen and Katie Roof.

(Updates with context in the final paragraph.)

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