Exclusive-Google in talks to invest in AI startup Character.AI -sources

By Krystal Hu

(Reuters) – Alphabet (NASDAQ:)’s Google is in talks to invest hundreds of millions of dollars in Character.AI, as the fast growing artificial intelligence chatbot startup seeks capital to train models and keep up with user demand, two sources briefed on the matter told Reuters.

The investment, which could be structured as convertible notes, according to a third source, will deepen the existing partnership Character.AI already has with Google, in which it uses Google’s cloud services and Tensor Processing Units (TPUs) to train models.

Google and Character AI did not respond to requests for comment.

Founded by former Google employees Noam Shazeer and Daniel De Freitas, Character.AI allows people to chat with virtual versions of celebrities like Billie Eilish or anime characters, while creating their own chatbots and AI assistants. It is free to use, but offers subscription model that charges $9.99 a month for users who want to skip the virtual line to access a chatbot.

Character.AI’s chatbots, with various roles and tones to choose from, have appealed to users ages 18 to 24, who contributed about 60% of its website traffic, according to data from Similarweb (NYSE:). The demographic is helping the company position itself as the purveyor of more fun personal AI companions, compared to other AI chatbots from OpenAI’s ChatGPT and Google’s Bard.

The company previously said its website had attracted 100 million monthly visits in the first six months since its launch.

Character.AI is also in talks to raise equity funding from venture capital investors, which could value the company at over $5 billion, sources said. In March, it raised $150 million in a funding round led by Andreessen Horowitz at $1 billion valuation.

The talks with Google are ongoing and terms of the deal could change, said the sources, who requested anonymity as the discussions are private.

Google has been investing in AI startups, including $2 billion for model maker Anthropic in the form of convertible notes, on top of its earlier equity investment. Anthropic uses Google’s cloud services as well as its latest version of TPUs.

That is part of a recent trend in which big tech cloud services providers are striking deals with AI companies to entice them to use certain cloud or hardware in the computer-intensive race to build models and serve consumers, including Microsoft (NASDAQ:) investments in OpenAI and Google and Amazon (NASDAQ:)’s bets on Anthropic.

U.S. Federal Trade Commission chair Lina Khan said at an event in San Francisco last week that the agency is looking into cloud provider investments in AI startups to examine any anti-competitive behaviors.