AI bot company Character.ai seeks bankruptcy protection

The AI boom is seeing one of its first major busts, as Character.ai has filed for Chapter 11 bankruptcy protection while it searches for a buyer. Founded in 2021, Character.ai enables users to create customizable chatbots and interact with them, and by February 2025 claimed to have over 20 million monthly active users. However, it failed to turn them into a profitable revenue stream, and has been losing $8 million a month, according to Reuters. The company estimated in its bankruptcy filing that it only had assets of between $50 million and $100 million, and liabilities in the same range, despite receiving investments totalling almost $200 million over the years, pushing its valuation to a peak of around $1 billion. Character.ai told subscribers that during the bankruptcy proceedings their access to Character ai chatbots is unaffected, and they will continue to be charged for the service. To keep its chatbots chatting, the company has granted Disney a non-exclusive license to its technology for $20 million as part of the bankruptcy proceedings, a so-called stalking-horse deal that sets a benchmark for other bids. Character.ai’s troubles haven’t just been economic: It has faced sev…

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