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Character Technologies, the company behind the chatbot platform Character.AI, announced on Monday it has filed for Chapter 11 bankruptcy.
Character.AI – which lists its headquarters in Menlo Park and has an office in Redwood City – allows users to chat with customizable fictional and real characters, and is popular among anime, gaming and fanfiction communities that enjoy digital companionship. Its core audience is young people under the age of 24.
Chapter 11 bankruptcy is a court-supervised process that allows companies to reorganize or sell their assets. Character.AI indicated in its press release that it plans to sell “all or substantially all of our assets.” Disney will serve as the initial primary bidder for a “non-exclusive perpetual license” of certain parts of the company’s intellectual property in exchange for $20 million and transition services, the company said in a press release.
“Over the past year, we’ve taken meaningful steps to sustain and improve our business amid significant legal, regulatory, and operational headwinds,” the company said in a press release. “Our board determined that this court-supervised sale process provides us with the best opportunity to maximize value for all of our stakeholders.”
Character.AI is among the first prominent consumer AI startups to file for bankruptcy. The platform has up to 20 million active users, according to its website, and was valued at $1 billion as recently as 2023, when it had received funding from prominent venture capital firms including Andreessen Horowitz. The platform was founded in 2021 by two ex-Google employees, Noam Shazeer and Daniel De Freitas. Former Character.AI CEO Karandeep Anand departed the company in early October to become Disney’s first-ever chief technology officer. The court-supervised sale process is expected to finish by late November or early December this year.
In recent years, the organization has been plagued by a slew of lawsuits involving at least two teen suicides and the platform’s impact on mental health for young people. In January, Character.AI settled a wrongful death lawsuit with the family of a Sewell Setzer III, a 14-year-old Florida teenager who died by suicide after spending extensive time talking with a chatbot modeled after the fictional character Daenerys Targaryen from “Game of Thrones.”
For existing users of Character.AI, the company said the platform will remain running, but noted the platform would be “wound down” if the bankruptcy sale process does not yield an actionable bidder.
