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Business valued at $1 billion after $150 million round from A16Z

Character.AI, an artificial intelligence startup founded by two former Googlers, is tapping into venture capitalists’ unquenchable thirst for deals in tech’s hottest space.

The two-year-old company said Thursday it raised $150 million at a $1 billion valuation in a funding round led by Andreessen Horowitz. Noam Shazeer and Daniel De Freitas, who helped create the architecture used in popular chatbots, left Google in 2021 and founded Character.AI in the same year.

Character.AI said in a press release announcing the funding that its technology gives “users the ability to create a fully customizable and personalized AI companion with a distinct personality and values.”

The funding round follows major efforts by Google and Microsoft to develop and embed chatbot software into key products, bringing AI-generated responses into things like search, documents and email. Big tech companies and VCs are rushing into the market after Microsoft-backed OpenAI released ChatGPT to the public in November and saw the free experimental service go viral.

In January, Microsoft announced a ChatGPT-integrated Bing search engine. Earlier this week, Google launched a test version of the chatbot Bard.

“There are some overlaps, but we’re confident that Google will never do anything funny,” Freitas told Axios regarding Bard. “Because we worked there.”

Character.AI said the fresh capital will allow it to expand its “computational capabilities, resulting in a more sophisticated model with advanced reasoning and greater accuracy.” The money will help the company grow its 22-person team and add technical skills. The company said it is approaching 100 million site visits per month, “a fourfold increase in two months.”

The 10-figure valuation for an allegedly pre-revenue company is reminiscent of other recently hyped technologies such as crypto (or more broadly Web3) and social audio. Andreessen Horowitz has been a significant player in driving up prices in both markets. The firm announced a $4.5 billion crypto fund in mid-2022 when the digital currency market was in freefall. A year earlier, it added to its investment in audio app Clubhouse, valuing the early-stage startup at $4 billion. The clubhouse quickly became quiet as the post-shutdown economy reopened.

Character.AI did not provide further comment.

Sarah Wang, a partner at Andreessen Horowitz, said in the release that “Character.AI is rapidly and dramatically advancing generative AI, with the potential to transform how humans connect not only to AI, but more broadly, reinventing how we interact with technology as a whole in our everyday life.”

Other investors include former GitHub CEO Nat Friedman, Elad Gil, A Capital and SV Angel.

Jill Chase, who heads AI investments at Alphabet’s late-stage venture group Capital G, previously told CNBC that Shazeer is the type of person who “can go into their basement for 18 months and change the world.”

“I’ve spent a lot of time with Noam,” she said. “He is an exceptional technologist.”

See: AI arms race

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