Introduction

It's a classic underdog story: Character AI, despite its innovative edge, which went underappreciated during its founders' tenure under Google, now faces an uphill battle against larger, well-funded rivals like Meta. They exemplify a missed opportunity for one giant – Google, now seemingly eager to rejoin the fray; and serve as an inspiration for another – Meta, possibly leading to Character AI's eventual crash, given how hard it is to compete with a company of over 3 billion users, especially having almost no revenue, nor a sustainable business model.

What put it on our list? Only eight months ago, in March, the startup raised $150 million in a funding round led by Andreessen Horowitz (a16z), achieving a valuation of over $1 billion. Recently, there's been news of Google's interest in investing 'millions', potentially elevating the company's valuation to over $5 billion. This situation turns Character AI into a potentially significant player in our AI Unicorn family list.

However, there's also a profound risk of failure.

So what is Character AI? Let’s take a closer look at what we already know about them:

Google didn't pay enough attention – the starting point of Character AI

During their time at Google, Noam Shazeer and Daniel De Freitas were instrumental in the projects that could have emerged as significant as ChatGPT did. In 2017, Noam Shazeer co-authored the seminal paper 'Attention Is All You Need,' laying out the groundbreaking Transformer architecture, which catalyzed the generative models uprise. He was also the first to scale Transformers to supercomputers and pioneered large-scale pretraining. Drawing on this attention paper, Daniel De Freitas, in 2020, initiated and led the Meena project, which was later renamed LaMDA. This 2.6 billion parameter, end-to-end trained neural conversational model, unveiled in 2021, was capable of… chatting about anything.

Sounds familiar, doesn't it? However, Google held back on these innovations. Shazeer’s proposal for a chatbot never materialized at Google, hindered by concerns over potential missteps in its responses. Google's executives repeatedly dismissed the idea, at least once stating that the AI didn’t align with the company’s standards for safety and fairness in AI systems.

Consequently, at the end of 2021, both Shazeer and De Freitas resigned from Google and founded Character AI – a startup focused on creating chatbots capable of mimicking famous personalities.

De Freitas' childhood dream to talk to computers: the vision behind Character AI's mission

De Freitas wanted to talk to his computer since he was a child. He told The Information that when he was 9 and beginning to learn how to write code, he built a program that could seemingly hold a conversation, an experience that left him mesmerized.

Thus, Character AI’s mission became to revolutionize human-chatbot interactions, aiming to provide hyperrealistic, customizable chatbots capable of companionship, emotional support, and even romantic connections, catering to a variety of human desires. Allegedly, this is all in service of helping people live their best lives. At least, that’s the narrative that has attracted a few large investors. AI companions have been a hot topic in 2023.

This vision led to the creation of a platform hosting over 14 million unique chatbots, demonstrating their commitment to user-driven innovation.

Character AI's financial situation: from seed rounds to Google's multi-million dollar interest

Bonus: All important links about the founders and CEO

Noam Shazeer – Co-Founder and CEO

Daniel De Freitas – Co-Founder and President

Thank you for reading, please feel free to share with your friends and colleagues. In the next couple of weeks, we are announcing our referral program 🤍

Previously in Unicorn Chronicles: