A 16-month-old chatbot startup with no revenue is now a $1 billion unicorn

Character.AI says it raised $150 million from Andreessen Horowitz and others

A 16-month-old chatbot startup is now a $1 billion unicorn.

Character.AI, a Silicon Valley company started by two former Google employees, said Thursday it raised $150 million in a new funding round led by well-known venture-capital firm Andreessen Horowitz. The new investment values Character.AI at $1 billion. 

A representative for the company said Character.AI doesn’t generate revenue but might offer a premium subscription service in the future.

ChatGPT

The introduction of ChatGPT has created a huge rise in interest for AI programs. A logo of ChatGPT as seen on a cell phone.  (CFOTO/Future Publishing via Getty Images / Getty Images)

The private company is the latest to raise money in the AI-development race set off by the startup OpenAI, which released its buzzy chatbot ChatGPT in November. It also comes about two weeks after Silicon Valley Bank collapsed, straining venture-backed startups that kept their money there.

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"I think everyone is starting to realize how valuable this product can be," Character.AI Chief Executive Noam Shazeer said Thursday.

Character.AI launched an early version of its software in September, allowing users to create and interact with chatbots that role-play as characters or as famous people like Elon Musk and Vladimir Putin. The company was founded in November 2021 by two former Google engineers, Mr. Shazeer and Daniel De Freitas, and has 22 employees. It said it gets nearly 100 million visitors a month to its website.

Elon Musk, founder of SpaceX and chief executive officer of Tesla Inc., arrives at the Axel Springer Award ceremony in Berlin, Germany, on Tuesday, Dec. 1, 2020. Tesla Inc. will be added to the S&P 500 Index in one shot on Dec. 21, a move that will ripple through the entire market as money managers adjust their portfolios to make room for shares of the $538 billion company. Photographer: Liesa Johannssen-Koppitz/Bloomberg via Getty Images

Elon Musk, founder of SpaceX and chief executive officer of Tesla Inc. can be impersonated by the Character.AI tool. Photographer: Liesa Johannssen-Koppitz/Bloomberg via Getty Images (Getty Images)

Dozens of artificial-intelligence startups are billion-dollar unicorns, according to CB Insights, including OpenAI. OpenAI kicked off the recent AI boom, making chatbot startups some of the hottest companies to invest in.

Microsoft Corp. has pledged to invest billions of dollars over several years in Open AI. OpenAI was in talks earlier this year to sell existing shares in a tender offer that would value the company at about $29 billion, The Wall Street Journal reported. That valuation would make OpenAI one of the most valuable U.S. startups on paper. 

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OpenAI was founded in 2015 and launched ChatGPT in November last year. Character.AI released the beta version of its chatbot two months before ChatGPT came out.

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"We have already launched something that is more engaging and more fun than anything else out there," Mr. Shazeer said.

OpenAI didn’t immediately return a request for comment.

For Character.AI, an investment from Andreessen Horowitz marks a significant step. The VC firm, known as a16z, is one of the most influential tech investors in Silicon Valley. One of Andreessen’s general partners, Sarah Wang, is set to join Character.AI’s board, Character.AI said Thursday.

Marc Andreessen

Venture capitalist Marc Andreessen speaks at the TechCrunch Disrupt conference in San Francisco, Calif. on Tuesday, Sept. 13, 2016.  (Photo By Paul Chinn/The San Francisco Chronicle via Getty Images / Getty Images)

"Character.AI is rapidly and dramatically advancing generative AI, with the potential to transform how humans connect," Ms. Wang said.

Andreessen didn’t return a request for comment.

In addition to funding from Andreessen, the startup said it recently got more money from previous investors including Nat Friedman, the former chief executive of Microsoft unit GitHub, and SV Angel, one of Silicon Valley’s most active seed investors.

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"Andreessen and others have really seen the value in the space and the value in the team," Mr. Shazeer said. "And if anything, the world is investing too little in this technology."

Character.AI said the new funds would allow it to hire more engineers and expand its chatbots’ capabilities. The company said Thursday that it was releasing an early preview of a more advanced chatbot model that can help people draft emails or study for tests.