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Character.AI bankruptcy filing reveals the rapid climb, stunning collapse of a once-major AI player

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Character.AI bankruptcy filing reveals the rapid climb, stunning collapse of a once-major AI player

Character.AI, the chatbot platform that lets people create and talk to AI characters, has filed for Chapter 11 bankruptcy.

The company filed a voluntary petition in the U.S. Bankruptcy Court for the District of Delaware on Oct. 12, according to court records. It is using the bankruptcy process to sell itself under court supervision.

In a blog post announcing the decision, the company said it had spent the past year trying to sustain its business amid "significant legal, regulatory, and operational headwinds." The company also said that the board reviewed its options and decided a court-supervised sale offered the best chance "to maximize value for all of our stakeholders."

Character.AI estimated both its assets and its liabilities at between $50 million and $100 million, TechCrunch reported. According to the filing, the board formed a restructuring committee on Oct. 8 to weigh its options given the company’s cash flow, liquidity, and potential legal liabilities. The committee approved the bankruptcy filing four days later.

Former Google engineers Noam Shazeer and Daniel De Freitas founded Character.AI in late 2021. The startup reached a $1 billion valuation in 2022 after raising $150 million. In Aug. 2024, Google struck a $2.7 billion deal to license its models, and both founders went back to Google.

Usage stayed high afterward. AI had 20 million monthly active users, part of a fast-growing AI companion community , and Sensor Tower data cited by TechCrunch ranks it among the top AI apps by time spent.



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