Just 5 years in, interactive chatbot platform Character.AI files for bankruptcy

In June of last year, the company appointed Anand, a former Brex and Meta executive, as CEO, and expanded its products to add AI video generation, and social feeds. The company has since tried to introduce new ways to spur user engagement via interactive storytelling formats as well as microdramas.

But the fact that the company had to file for bankruptcy shows that such changes couldn’t move the needle on sustainability for the startup.

It also shows that consumer-facing AI products are really hard to scale and monetize. Character.AI was one of the top apps in terms of time spent, according to analytics firm Sensor Tower. But high engagement can be a double-edged sword, AI costs rise the more people use the app, which consequently also increases the pressure to monetize users.

Character.AI has raised over $193 million in funding across multiple rounds from investors including Lightspeed, SV angels, Greycroft, and a16z, according to PitchBook.