AI Startup Character.AI, Valued at Up to $1 Billion, Has Filed for Bankruptcy

• Character.AI has initiated Chapter 11 bankruptcy proceedings in the United States.
• The company expects to sell the business under court supervision by late November or early December 2026.
• In 2023, the startup raised $150 million in an investment round led by Andreessen Horowitz (a16z), at a $1 billion valuation.

Character.AI, a company focused on developing artificial intelligence (AI)-powered chatbots, announced that it has voluntarily commenced bankruptcy proceedings under Chapter 11 of the U.S. Bankruptcy Code. The decision предусматривает sale of the business under court supervision.

The company said the move was driven by legal, regulatory, and operational challenges it has faced over the past year. After reviewing the available options, the board of directors concluded that a court-supervised sale process would best preserve the business’s value for stakeholders.

Character.AI expects to find a buyer who will ensure the platform continues operating. If no suitable offer comes in, the service will shut down.

At the time of the announcement, the platform continued to operate as usual. All features remain available to users, and the terms of paid subscriptions and billing procedures remain unchanged for now.

What we know about Character.AI and what’s next for the company

Character.AI expects the sale process to be completed by late November or early December 2026. The company did not disclose potential buyers or the possible value of the deal.

Users were promised advance notice of any changes that could affect paid features. In addition, Character.AI has kept its existing personal data protection policies in place, as well as the option to export chat histories.

The startup was founded in 2022 by former Google engineers Noam Shazeer and Daniel De Freitas. The platform lets users create AI-based virtual characters and interact with them via chatbots.

In March 2023, Character.AI raised $150 million in a Series A funding round led by venture capital firm Andreessen Horowitz. Other participants included Nat Friedman, Elad Gil, SV Angel, and A Capital.

At the time, a16z general partner Sarah Wang joined the startup’s board of directors. Investors were betting on rapid growth in the generative AI market, and the company planned to use the raised capital to scale the business amid a growing user base.

Later, the project ran into a number of challenges. Among them were lawsuits, as a result of which the platform restricted access to chats for minors. 

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