Character.AI files for bankruptcy and agrees to sell assets to Disney for $20 million
The chatbot company, once valued at more than $1 billion, has chosen a court-supervised sale. Its chief executive says the platform will be wound down if no other bid comes in.
Key points
- Character.AI has filed for Chapter 11 bankruptcy in the United States.
- Disney has agreed to buy some assets for $20 million plus a perpetual licence to its technology.
- CEO Colin Adams says the platform will be wound down if no bid emerges.
Character.AI, the chatbot company that let millions of people talk to AI versions of fictional and historical characters, has filed for Chapter 11 bankruptcy in the United States and agreed to sell some of its assets to Disney.
Disney will pay $20 million and get a non-exclusive, perpetual licence to the company’s technology. The sale is expected to close in late November or early December. A court document puts the company’s assets and its liabilities each between $50 million and $100 million.
Chief executive Colin Adams said the board had chosen a court-supervised sale as the “best opportunity to maximize value” for the company’s stakeholders. The platform will keep running during the process, but he was blunt about the alternative. If no bid comes in, he wrote, “the platform will be wound down.”
Former Character.AI employees who joined Disney last month, along with former chief executive Karandeep Singh Anand, will provide transition services.
A fast rise
The company was founded in late 2021 by Noam Shazeer and Daniel De Freitas, two former Google engineers. Shazeer was one of the authors of the 2017 Transformer paper that underpins today’s large language models.
Growth came quickly. In September 2022 it raised $150 million at a valuation of more than $1 billion; users had exchanged over 2 billion messages in its first five months and were spending more than two hours a day on the service on average. Its apps were installed more than 1.7 million times in their first week in May 2023, and by October 2024 it had about 20 million monthly users.
In August 2024 Google paid $2.7 billion to license Character.AI’s models, and Shazeer and De Freitas went back to Google. The startup stopped training its own foundation models and turned to growing the consumer product. Anand, a former Brex and Meta executive, took over as chief executive in June 2025 and added AI video, social feeds and short interactive dramas.
Lawsuits and costs
The company also faced lawsuits, including one brought by the mother of a 14-year-old Florida boy who died by suicide after, she said, becoming obsessed with a chatbot on the platform. Texas opened an investigation into its child privacy and safety practices. Character.AI settled some of the cases, added safety features and banned minors from the service.
Money was the other strain. Character.AI ranked among the top apps for time spent, but AI costs rise with every conversation, so the more people used it, the harder it had to work to earn from them. It had raised more than $193 million from investors including Lightspeed, SV Angel, Greycroft and Andreessen Horowitz.