Google in talks to invest in AI startup Character.AI

Google is in discussions to invest hundreds of millions of dollars in Character.AI, according to an exclusive report from Reuters. The details regarding the terms and the overall amount of the investment were not revealed. Character.AI is an AI chatbot startup known for its ability to create realistic and engaging conversational experiences.

The news of the investment comes at a crucial time for the rapidly expanding AI chatbot startup, as it seeks capital to train models and address the escalating demand from users, Reuters reported, citing information from two sources familiar with the situation.

The third source told Reuter that the potential investment could take the form of convertible notes, which would further strengthen the existing partnership between Character.AI and Google, wherein the startup utilizes Google’s cloud services and Tensor Processing Units (TPUs) for model training. In addition to fortifying the Google-Character.AI alliance, the investment would aid Character.AI in managing user demand and advancing its technology further.

Meanwhile, the sources, who requested anonymity as the discussions are private, also told Reuters that the ongoing discussions with Google regarding potential investment are subject to change in terms,

Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI enables users to engage with virtual versions of celebrities and create their own chatbots and AI assistants. While the platform is free, it offers a subscription model at $9.99 per month for users seeking expedited access to chatbots.

Apart from potential funding from Google, Reuters also reported that Character.AI is also in discussions to secure equity funding from venture capital investors, a move that could potentially value the company at over $5 billion, according to sources. In March, the startup successfully raised $150 million in a funding round led by Andreessen Horowitz, establishing a valuation of $1 billion.

Google’s interest in AI startups has been evident, with notable investments such as $2 billion for model maker Anthropic through convertible notes, in addition to an earlier equity investment. Anthropic utilizes Google’s cloud services and the latest iteration of TPUs.

This aligns with a broader trend where major tech players in cloud services are entering agreements with AI companies, aiming to attract them to leverage specific cloud services or hardware. This strategic move is driven by the intense competition in building models and serving consumers in the computationally demanding field, exemplified by Microsoft’s investments in OpenAI and the backing of Anthropic by both Google and Amazon.

Several factors make Character.AI an appealing investment for Google. First, its technology complements Google’s AI initiatives seamlessly, with the potential to enhance features in Google Search and provide more personalized experiences. Secondly, the startup boasts a skilled team with a track record, consisting of former Google AI researchers and attracting top-tier investors.

Finally, the burgeoning market for AI chatbots presents a lucrative opportunity. As AI advancements lead to more realistic and engaging chatbots, there is a rising demand across various sectors, including customer service, education, and entertainment.