Chatbot Start-Up Character.AI Valued at $1 Billion in New Funding Round

Character.AI, a 16-month-old startup that builds online chatbots, said it raised $150 million in a recent funding round that valued the company at $1 billion.

Character.AI is one of a small group of small companies – alongside giants in the tech industry – developing technology that could one day rival the systems being developed at OpenAI, the San Francisco startup which sparked the AI ​​boom with the release of an online chatbot called ChatGPT.

These companies have an unusual mix of experienced researchers and outsized ambition, and they need huge amounts of capital. Many experts believe that a handful of companies could dominate work on the new artificial intelligence.

“One of my concerns is that this will be a winner-takes-all or winner-takes-all market – that a few big players will really dominate,” said Erik Brynjolfsson, professor of economics at the Stanford University and Principal Investigator. at the school’s Institute for Human-Centered AI.

Venture capitalists scramble to invest in AI startups even as the rest of the tech industry grapples with layoffs, plummeting valuations and an unexpected banking crisis sparked by the Silicon Valley failure Bank.

Like OpenAI, new AI companies are building what are called Large Language Models, or LLMs, a kind of artificial intelligence that learns language skills by analyzing large amounts of data on the Internet. The technology drives online chatbots like ChatGPT and can power a wide range of other applications, including search engines, messaging services and personal tutors.

LLMs can answer questions, summarize articles, write essays, and even generate computer programs, but only a limited number of companies are ready to build systems as powerful as those recently released by OpenAI.

Palo Alto, Calif.-based Character.AI.’s new funding round was led by Andreessen Horowitz, one of Silicon Valley’s best-known venture capitalists. In December 2021, the company raised $43 million in seed funding.

At Google, Character.AI founders Noam Shazeer and Daniel De Freitas led a team that developed technology called LaMDA, short for Language Model for Dialogue Applications. The chatbot project drew attention last summer when a Google engineer, Blake Lemoine, told the Washington Post that he thought LaMDA was sentient.

By then, Mr. Shazeer and Mr. De Freitas had left Google to create Character.AI. Having built similar technology to LaMDA, the company offers a website where people can chat with a reasonable facsimile of almost anyone, living or dead, real or imagined. The underlying technology could power many applications far beyond chatbots, said Sarah Wang, general partner at Andreessen Horowitz.

This technology requires huge amounts of computer processing power. Mike Volpi, a general partner at Index Ventures who has invested in a company similar to Character.AI called Cohere, estimated that these companies need at least $500 million to spend on raw computing power.

OpenAI has raised billions of dollars from Microsoft. Most of this money is used to buy computing power from Microsoft’s Azure cloud service.

Mr. Shazeer said in an interview that Character.AI will soon be raising additional funds from one or more “strategic partners”. This could mean taking investments from cloud computing companies and using the money to buy computing power from those companies.