Character.AI, the interactive chatbot platform, has filed for Chapter 11 bankruptcy just five years after its inception. The company reported assets and liabilities ranging from $50 million to $100 million in a court document.
As part of the bankruptcy proceedings, Character.AI has agreed to sell some of its assets to Disney for $20 million. This deal also includes a non-exclusive perpetual license for its technology. Disney will reportedly provide transition services using former Character.AI employees who joined the entertainment giant last month, alongside former CEO Karandeep Singh Anand.
Character.AI CEO Colin Adams stated that the company will continue to operate during the sale process, which is anticipated to conclude in late November or early December. However, Adams noted that there is not yet a bid for the company's assets or a buyer, and the platform could be wound down if a suitable proposal is not found.
Founded in late 2021 by former Google engineers Noam Shazeer and Daniel De Freitas, Character.AI initially focused on training foundation models and developing its chatbot platform. The company achieved a unicorn valuation in September 2022 and saw significant user engagement, with its apps attracting over 1.7 million installs in their first week after launch in May 2023.
Challenges arose after the company faced lawsuits following the suicide of a 14-year-old boy, whose mother alleged he became obsessed with a chatbot on the platform. This led to an investigation by Texas into child privacy and safety laws, prompting Character.AI to settle some lawsuits, add safety features, and ban minors from its platform.