Google's deal for Character.AI is about fundraising fatigue
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Google stunned Silicon Valley on Friday by kinda/sorta acquiring Character.AI, a personalized chatbot developer that last year secured $150 million in Series A funding at a $1 billion valuation.
The big picture: No entrepreneur enjoys fundraising, but there's a special unpleasantness for generative AI founders who need billions of dollars to train their models.
- It's just not what many of these trained engineers want to be doing, even if VC wallets are open.
- Character.AI's co-founders chose the path of least repulsion.
Catch up quick: Character.AI co-founders Noam Shazeer and Daniel De Freitas will rejoin Google, where they worked until 2021, alongside more than two dozen Character AI researchers.
- In announcing the Series A deal, De Freitas had told me he wasn't worried about product overlap with his former company because "Google will never do anything fun." That one might follow him around the Mountain View hallways.
- The search giant also will sign a non-exclusive license for Character.AI's models, and also buy out venture investors at around a $2.5 billion valuation. The size of its total investment isn't being disclosed.
- Character.AI will be led on an interim basis by general counsel Dom Perella, while a source says that Andreessen Horowitz's Sarah Wang will remain on the board as an independent director through the transition.
In the weeds: Character.AI had talked a ton about its closed-loop strategy, whereby it trained its own LLM, used that model for its chatbots, and then pushed that usage data back into its training.
- Now it will pivot exclusively to post-training, and will use open-source models developed by others (e.g., Meta's Llama).
Zoom out: This deal makes sense for Google, which is still smarting from not being in the lead of an AI race in which it had a massive head start.
- But it also puts Google in the crosshairs of FTC antitrust regulators, who already are probing other quasi-acquisitions like Microsoft's deals with OpenAI and Inflection. In fact, it almost feels like Google is taunting the FTC.
Look ahead: Character.AI's remaining leadership must convince around 100 rank-and-file to stick around with new bosses and a new mission, after others already got rich.
- If successful, it's entirely possible that it will seek new venture capital, likely with more modest targets given the reduced compute costs.
- Possibly from some of the same investors, although no one is rolling over into the Google deal.
The bottom line: Character.AI is dead, long live Character.AI!
