Character.AI files for bankruptcy after just five years: Disney takes part of the assets for 20 million dollars, and nobody wants the platform

In 2022 it was worth at least a billion dollars. In 2024 Google paid 2.7 billion dollars for a licence to its models. Today Character.AI is in Chapter 11 bankruptcy proceedings under US law, with assets and liabilities estimated at between 50 and 100 million dollars.

The platform, where users create AI characters and chat with them, has agreed to sell part of its assets to Disney for 20 million dollars (around 17 million euros), together with a non-exclusive perpetual licence to the technology. The handover will be run by former Character.AI employees who moved to Disney last month, together with former CEO Karandeep Singh Anand.

CEO Colin Adams says the platform keeps running while the sale is under way, which should close at the end of November or early December. So far there is no buyer. "If no such offer emerges, the platform will be shut down," Adams wrote. Users and their conversations now hang on an offer that nobody has made yet.

The story started brilliantly. The company was founded at the end of 2021 by former Google engineers Noam Shazeer, co-author of the famous transformer paper, and Daniel De Freitas. In September 2022 it raised 150 million dollars, and in five months users had exchanged more than 2 billion messages with the bots, spending an average of over two hours a day on the platform. By October 2024 the number had reached 20 million monthly active users.

But in August 2024 Google struck a 2.7-billion-dollar deal to license the models - and both founders went back to Google. The company stopped training its own models and threw itself at growth. Who actually got the value - the startup, or the search giant that got its engineers back?

Then came the lawsuits. A Florida mother sued the company after the suicide of her 14-year-old son, who she says had become obsessed with a bot on the platform. Texas opened an investigation into whether the platform complies with children's privacy and safety laws. The company settled some of the suits, added safeguards and banned minors.

Neither a new CEO since June last year, nor AI-generated videos, a social feed of posts and micro-dramas saved the business. The problem lies in the formula itself: Character.AI was among the apps people spend the most time on, and in artificial intelligence every extra conversation costs money. The more people use it, the more expensive it gets.

Investors such as Lightspeed, Greycroft and a16z put in more than 193 million dollars. Disney now takes part of the assets and a technology licence for roughly a tenth of that sum. Five years, from unicorn to bankruptcy: if this is the fate of one of the most popular AI apps, what awaits the smaller ones that depend on other companies' models and on investors' money?