Startup Character.AI files for bankruptcy

In a filing with the Delaware Bankruptcy Court on October 13 under Chapter 11, Bankruptcy Law, the startup said: "In four years of operation, the platform has attracted a large number of active users. However, in this rapidly growing and constantly changing field of AI entertainment, development and expansion are very expensive."

Character.AI is not yet profitable despite having about 12 million users. Due to spending large amounts of money on computing and recruiting AI talent, the company suffers losses of about 8-9 million USD per month.

⁠According to Character.AI, high costs and potential debt related to lawsuits and working with regulators contribute to their inability to generate enough cash flow to maintain operations under the current model. They hope the bankruptcy proceedings will help reach a global resolution of all legal claims against the company, including investigations conducted by US states and international agencies, and private lawsuits accusing Character.AI's chatbot of motivating children to commit suicide and self-harm.

Colin Adams, CEO of Character.AI, said the court-supervised sale of assets "gives the company the best opportunity to maximize value for all stakeholders".

According to CNBC, before filing for bankruptcy, this startup reached an agreement for Disney to act as the party making the initial purchase offer, at a price of $20 million for the rights to use some intellectual property, and provide transfer services through former employees that the group has recruited.

Disney hired former Character.AI CEO Karandeep Anand as chief technology officer earlier this month. According to court filings, other potential buyers could offer higher bids than Disney for Character.AI's assets.

Reuters said, Character.AI plans to complete the sale of all assets by the end of November or early December. Character.AI estimates that total assets and liabilities are in the range of 50-100 million USD. The platform will continue to operate during the bankruptcy process, but could be closed if a buyer cannot be found.

According to CNN, Character.AI was founded in 2021 by Noam Shazeer and Daniel de Freitas, two former employees of Google's AI department. This platform allows users to create their own chatbots, simulating anyone they want, whether alive or dead. Some chatbots are famous characters such as scientist Albert Einstein, billionaire Elon Musk, and game character Mario.

Just over a year after its founding, Character.AI said it has reached a valuation of $1 billion, following a $150 million funding round. By mid-2023, each month the platform has more than 200 million website visits and users have created more than 10 million different chatbots.

This startup has attracted attention from Google, Meta, xAI (SpaceXAI). By 2024, Google bought the rights to use Character.AI's technology and re-hired the founders.

However, Character.AI also encountered many legal problems. In September 2025, Disney sent a letter requesting to stop unauthorized use of its copyrighted characters. Character.AI later said it had removed them. US states have also repeatedly sued this company, with Kentucky accusing the platform's chatbot of encouraging users to cut themselves, starve, and commit suicide, and Pennsylvania accusing the chatbot of impersonating a doctor.