Just 5 years in, interactive chatbot platform Character.AI files for bankruptcy

Only five years into its journey, Character.AI, which lets users create AI characters and have conversations with them, has filed for Chapter 11 bankruptcy, following a slew of lawsuits and struggles to scale its popular platform. In a court document, the company said it had assets and liabilities between $50 million and $100 million.

“Over the past year, Character.ai has taken meaningful steps to sustain and improve its business in the face of significant legal, regulatory, and operational headwinds. After a comprehensive review of the available alternatives, the board determined that this court-supervised sale process provides the Company with the best opportunity to maximize value for all stakeholders,” Character.AI CEO Colin Adams said in a statement.

The startup has also agreed to sell some of its assets to Disney for $20 million, as well as a non-exclusive perpetual license for its technology.

The company said Disney will provide transition services via former Character.AI employees who joined the entertainment giant last month alongside its former CEO Karandeep Singh Anand.

Adams said that company would continue operating during the sale process, which is expected to close in late November or early December. However, he did note that there isn’t yet a bid for the company’s assets or a buyer.

“We hope that the sale process will yield an actionable proposal that will allow continued operations of the Character.ai platform. If such a bid is unavailable, however, the platform will be wound down,” Adams wrote.

Character.AI has had a tumultuous five years. Founded by former Google engineers Noam Shazeer, a co-author of the landmark Transformer paper, and Daniel De Freitas in late 2021, the startup initially focused on training foundation models and developing an AI chatbot platform that lets people create custom characters they could chat with.

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