Valuation shrinks by 50%! Google acquires Character AI for over $2.5 billion and absorbs the team, AI unicorns speeding up their "selling out" to the "big players" | Titanium Media AGI

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Just this morning, Character AI, which was denied by Musk, finally announced its acquisition, with Google as the acquirer, where the founder had previously left.

In the early hours of August 3rd, Beijing time, Character.AI announced that Google has agreed to pay a model licensing fee to the AI digital human unicorn company Character.AI, and will have Character.AI's co-founder and CEO Noam Shazeer, president Daniel De Freitas, and about 30 of Character's employees engaged in model training and voice AI work (out of approximately 130 employees) join Google to participate in the Gemini AI project.

Earlier, it was reported that Character.AI was facing financing difficulties and was seeking acquisitions from Meta and other tech giants. Musk's xAI was rumored to be one of the key acquirers, but Musk denied it later.

According to reports, Character.AI's management told employees on Friday that investors' shares would be acquired at an estimated value of about $88 per share. This is roughly 2.5 times the value of Character's Series A financing stock in 2023, when the company was valued at $1 billion.

Therefore, Google's total acquisition value of Character.AI will exceed $2.5 billion.

Furthermore, as the CEO returns to Google with the team, Character.AI has appointed the company's general counsel, Dom Perella, as interim CEO. Additionally, the company will switch to using open-source models like Meta Llama 3.1 to support its products, rather than using internal models.

Character.AI was founded in 2021 and is headquartered in the United States. Co-founder and CEO Noam Shazeer was one of Google's early key employees, while Daniel De Freitas is a Google AI expert who previously launched and led the development of the LaMDA model at Google Brain.

At its inception, Character.AI's core product was an AI role-playing chatbot that built a new AI role-playing community. Users can interact and converse with anime characters, celebrity figures, or even custom characters in this community. This new interactive experience provides users with endless possibilities, allowing them to have real and fun interactions with their favorite characters. Shazeer decided to make the basic services of Character.AI's chatbot available for free to everyone, further enhancing the product's user base and influence.

In just three years, Character.AI has experienced rapid growth, with a valuation surpassing $1 billion in March 2023 and a disclosed valuation of over $5 billion in September last year. Character has raised over $150 million from venture capital firms such as Andreessen Horowitz (a16z) and Greycroft—indicating, The acquisition price has shrunk by about 50% compared to September last year.

Since its release in May 2023, Character.ai's Android downloads have exceeded 3 million times.

However, according to The Information, Character.ai has been working hard to cut costs in recent weeks, with commercialization still facing challenges. Currently, the number of paid subscription users is less than 100,000, accounting for only a small part of the 6 million daily active users in July.

Google had previously provided cloud computing services, the right to use advanced chips, and convertible bond financing for Character. According to an employee, the company has strengthened security work in recent weeks, including removing romantic chatbots from the homepage to comply with regulations.

Now, the Character.AI team has found its final destination, with Google offering a large sum for acquisition. The two founders are returning to Google, and dozens of researchers are also joining the "big company." According to reports, unvested employee options will continue to vest at a price of $88 per share until the end of July 2026; these options will be paid through a fund funded by licensing agreements, and the options will continue to vest in two years, but the fund will no longer guarantee payment.

In fact, as AI research and development costs continue to rise, the high costs and difficult commercialization situation have made business founders extremely worried. Therefore, AI unicorns are desperately selling themselves to the "big companies," and the market's merger and acquisition competition continues to heat up.

Recently, AI unicorns Adept and Inflection have respectively sold themselves to Amazon and Microsoft. Although not technically acquisitions, antitrust regulators have also begun to take notice. The Federal Trade Commission is investigating Microsoft's deal with Inflection to determine whether the deal should be reported to the government.

The Chinese version of Character.AI, the large model company "Lingxin Intelligence" affiliated with Tsinghua University, has previously been acquired by Zhifu AI.

According to The Information, Character had previously engaged in partnership negotiations with Meta Platforms and Elon Musk's xAI, with xAI also considering acquiring this startup.

Regarding this acquisition, a Google spokesperson said in a statement: "We are particularly pleased to welcome the return of outstanding researcher Norm to the field of machine learning, who will join Google DeepMind's research team with a few colleagues. This agreement will provide more funding for Character.AI to continue its development and focus on creating personalized artificial intelligence products for global users."

"I am very excited to return to Google and become a member of the Google DeepMind team. I am extremely proud of all the achievements we have made at Character.AI over the past 3 years. I believe that the funding brought by the non-exclusive Google licensing agreement, combined with the excellent Character.AI team, will lay the foundation for Character.AI's continued success in the future "Norm Sazir said.

(This article was first published on the Titanium Media App, author | Lin Zhijia, editor | Hu Runfeng)