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

Character.AI is heading into Chapter 11 just five years after it started, a sharp turn for a company that once looked like one of consumer AI’s biggest breakout apps. In court filings, the startup said its assets and liabilities are somewhere between $50 million and $100 million. It has also agreed to sell some assets to Disney for $20 million, along with a non-exclusive perpetual license for its technology.

CEO Colin Adams said the company had spent the past year trying to steady the business in the middle of legal, regulatory and operational pressure. The board, he said, chose a court-supervised sale because it offered the best shot at preserving value. Character.AI will keep operating during the process, which the company expects to wrap up in late November or early December. But there is not yet a bidder for the whole company, and Adams was blunt about the fallback: if no actionable proposal shows up, the platform will be wound down.

That is a hard landing for a startup that was founded in late 2021 by former Google engineers Noam Shazeer and Daniel De Freitas. It first focused on foundation models and a chatbot platform where users could build custom characters to talk with. By September 2022, the company had become a unicorn after a $150 million fundraise. At the time, it said users had sent more than 2 billion messages in five months, and active users were spending more than 2 hours a day on the platform.

The growth kept coming. In May 2023, Character.AI’s apps pulled in more than 1.7 million installs in their first week. Then came Google’s $2.7 billion licensing deal in August 2024, which brought Shazeer and De Freitas back to Google. The company shifted away from training foundation models and toward growth, with general counsel Dominic Perella stepping in as interim CEO.

Traction did not save it from the legal mess that followed. The company was sued after the suicide of a 14-year-old Florida boy whose mother said he had become obsessed with a chatbot on the platform. Texas also opened an investigation into whether the service complied with child privacy and safety laws. Character.AI settled some cases, added safety features and banned minors, then later brought in former Brex and Meta executive Karandeep Singh Anand as CEO in June of last year. It expanded into AI video generation, social feeds, interactive storytelling and microdramas. None of that was enough to make the business durable.