Top tech startup news for Thursday, March 23, 2023: Block, Character.AI, Cannect Wellness, Terra, and Tome

Good evening! Below are some of the top tech startup news stories for Thursday, March 23, 2023

Crypto founder Do Kwon charged with fraud by U.S. prosecutors following Montenegro arrest

Earlier today, we wrote about Terra founder Do Kwon after he was arrested in Montenegro with falsified documents. Following his arrest, the US prosecutors charged Do Kwon with fraud. He was responsible for two digital currencies that suffered a loss of at least $40 billion last year, with fraud.

Kwon was arrested in Montenegro on Thursday, and an eight-count indictment was released in the US District Court in Manhattan shortly thereafter. As of business hours, Kwon’s attorneys in the United States had not responded to requests for comment.

The charges in the criminal case include two counts each of conspiracy, commodities fraud, wire fraud, and securities fraud. This indictment follows civil charges brought by the U.S. Securities and Exchange Commission (SEC) against Kwon and Terraform last month.

Kwon had been a fugitive for several months, and South Korean authorities had issued an arrest warrant for him in September of last year. Do Kwon, a South Korean citizen who co-founded Terraform Labs and created TerraUSD and Luna cryptocurrencies.

AI storytelling startup Tome triples its user base to 3 million in just a month, to launch a paid subscription

The popularity of OpenAI ChatGPT has led to a boom in the adoption of generative artificial intelligence (AI) and big tech companies and small startups alike are in a race to integrate it into their products. About two weeks ago, Salesforce announced the launch of EinsteinGPT, a large language model (LLM) product that uses the ChatGPT model to automatically write marketing emails.

But Salesforce is not alone. There are several other startups that are in a race with Big Tech such as Microsoft and Google. One of those startups is Tome, an artificial intelligence storytelling startup that helps users generate outlines about your topics in seconds. Tome enables you to unlock your best work with its AI-powered storytelling format.

As its AI products grow in popularity, Tome founder and CEO Keith Peiris told Reuters that the startup has seen its user numbers triple in a month to 3 million and the startup is now planning to launch a paid subscription in the coming weeks

“It’s a push into work and enterprise use cases for us after all the demand we’ve seen,” said Peiris, co-founder of Tome. “We want to use AI to shape and aid in every part of the process of taking an idea in your head and then translating it to a compelling story.”

Following a funding round led by Lightspeed Venture Partners last month at a $300 million valuation, Tome experienced both an increase in user growth and the launch of a new product. Greylock and Coatue are also among the company’s backers.

Cannabis startup Cannect Wellness raises $7.5M in funding to launch in Illinois

Cannect Wellness announced it has closed $7.5 million in equity funding to launch in Illinois. The funds will be used, in part, to complete the construction of phase one of their 62,000-square-foot, state-of-the-art cultivation and product manufacturing facility located just outside of Chicago.

One of the initial Craft Grower licenses granted by the State of Illinois was received by Cannect Wellness. The company is presently in the process of constructing its facilities and plans to start its operations in the next few months. As a result, Cannect Wellness is likely to become one of the first licensees in the state to begin operating as a Craft Grower.

“We are thrilled to introduce our unique blend of craft cannabis to the Illinois market,” said Gabe Singal, CEO and Co-Founder of Cannect Wellness. “Our company was founded, born and raised in Illinois. This is a dynamic and thriving market, and we are 100% committed to creating a Craft Grower success story here.”

Cannect Wellness’ focus on small-batch, craft cultivation, and product manufacturing sets it apart from larger, more industrial producers in the market.

“Our team is committed to producing the purest and highest quality products you can find,” Singal said. “We utilize sustainable, organic cultivation practices that not only produce top-quality flower but are also environmentally friendly. We believe that the cannabis industry has the potential to be a force for good in communities across the country. We are dedicated to doing our part to make that happen in Illinois,” he added.

Hindenburg Research says Jack Dorsey’s fintech company facilitates fraud against “unbanked” customers; Block shares plunge

Shares of Twitter founder Jack Dorsey’s Block plunged 18% after short-seller Hindenburg Research announced the payment company was its latest short position. Hindenburg alleged that the company permitted criminal activity to occur with minimal controls and significantly exaggerated the transacting userbase of its Cash App, a vital performance metric.

In a report titled, “Block: How Inflated User Metrics and “Frictionless” Fraud Facilitation Enabled Insiders To Cash Out Over $1 Billion,” Hindenburg said:

“Our 2-year investigation has concluded that Block has systematically taken advantage of the demographics it claims to be helping. The “magic” behind Block’s business has not been disruptive innovation, but rather the company’s willingness to facilitate fraud against consumers and the government, avoid regulation, dress up predatory loans and fees as a revolutionary technology, and mislead investors with inflated metrics.”

According to Hindenburg’s report, Cash App’s unbanked customers were accused of engaging in criminal or illicit activity. Additionally, Hindenburg claimed that the compliance programs of Cash App were deficient. During its two-year investigation, Hindenburg spoke with multiple former employees who revealed that internal concerns were ignored and user concerns were suppressed, even as alleged criminal activity and fraud persisted on the platform.

Hindenburg’s detailed report contains internal system screenshots and employee messages. It also highlights alleged financial misreporting. The short-seller alleges that up to 35% of Cash App’s revenue, approximately $892 million, is derived from interchange fees, and should be subject to a regulatory cap imposed on large financial institutions.

However, Hindenburg alleges that Block circumvents this regulatory cap by routing revenue through a small bank.

AI chatbot startup Character.AI valued at $1 billion after raising $150M in funding led by Andreessen Horowitz

Character.AI, an artificial intelligence start-up founded by two former Google employees, has raised $150 million in Series A funding led by Andreessen Horowitz. Existing investors, including Nat Friedman (former GitHub CEO), Elad Gil, SV Angel, and A Capital also participated.

A.I. chatbot startup Chaacter.AI valued at $1 billion after raising $150M in funding led by Andreessen Horowitz

The round puts the company at a $1 billion valuation, making it a new member of our highly coveted unicorn club. Character.AI will use the fresh capital infusion to accelerate growth and expand its compute abilities resulting in a more sophisticated model with advanced reasoning and greater accuracy. The funding proceeds will also help the company grow its 22-person team and add technical abilities.

In conjunction with the funding, Character.AI also announced that Andreessen Horowitz General Partner Sarah Wang will join its board of directors.

The announcement comes just three months after the successful launch of the widely popular OpenAI ChatGPT. Since then, investors and venture capital firms have been pouring into the red-hot generative AI space as they look for the next AI winner.

Founded in 2021 by two former Google engineers Noam Shazeer and Daniel De Freitas, Character.AI offers “users the ability to create a fully-customizable and personalized AI companion with a distinct personality and values.” The two co-founders helped created the architecture used in popular chatbots before leaving Google in 2021 to launch Character.AI

“Daniel and I are pleased that a world-class group of investors, led by the amazing team at a16z, believes in the remarkable advancements we’re making in AI, the company we’re building, and the value we can deliver to society and investors. We are gratified they recognize our ability to revolutionize AI and improve the way people live,” said Shazeer.