“Over the past two years, however, the landscape has shifted; many more pre-trained models are now available. Given these changes, we see an advantage in making greater use of third-party LLMs alongside our own. This allows us to devote even more resources to post-training and creating new product experiences for our growing user base.”
My interpretation is that Character.AI realized they don't actually need to train their own foundation models from scratch to support their product - they can build cheaper, faster and probably better if they use LLMs trained by other companies (could be GPT-4o/Claude/Gemini via APIs, could be Llama 3.1 self-hosted).
If they're not training foundation models any more, the talents of people like Noam Shazeer aren't so important to them. They need to focus on product development instead.
I think this highlights the winner-take-all stakes of intelligence. It also suggests that there is little to be gained by specialization. Building a brand might actually be more short-term profitable since you can swap in the latest AI models as they become available. In other words, if advancing the SOTA AI is your dream, a product company may not be the right place. And if building a product company is your dream, then building foundational AI might not be the best strategy.
> if advancing the SOTA AI is your dream, a product company may not be the right place.
Does Meta get in the way of this?
It's hard to compete with a company that is dead set on spending billions and seemingly wants to drive your SOTA AI product revenue to 0.
If you are OpenAI or Anthropic right now, it seems like trying to run a great restaurant at a reasonable price right next to a good (great?) restaurant that is serving everyone for free.
I'd argue that their own foundational models are getting outperformed by the Llama finetunes on HF and at this point they're shifting cost structures (getting rid of training clusters in favor of hosted inference).
Strange take since Noam was CEO. He didn't get kicked out. He left. Character AI and remaining employees is going to have a tough time ahead for survival as Google gouged it empty.
> If they're not training foundation models any more, the talents of people like Noam Shazeer aren't so important to them.
Why is the CEO important to model development regardless of talents? They've raised $150m+, have $15m+ ARR and ~200 employees, etc. Shouldn't the CEO be CEOing?
Edit: reading the comments below, it seems like maybe he thought the expected value of attempting to clear the hurdle of their valuation/liquidation preferences at a $250k/year salary as CEO was lower than a $5m+/year salary/RSUs from Google?
Noam Shazeer is a long-time googler who worked on machine learning for quite some time (take a look at his patent history, for example https://scholar.google.com/citations?view_op=view_citation&h...)). He was a favorite of Jeff Dean and did some of the most impressive work on ML that I saw at Google. I think at some point in the past, Noam saw that google wasn't supporting his work very well (google research went through a dark time where many researchers with creative ideas were shut down, either for business or reputation reasons, see https://www.businessinsider.com/google-ai-characterai-ceo-no...) and I figure he made a startup because it was a more convenient position for him to do research, even if there wasn't a strong revenue model. Now he returns to Google in a position of deep strength and will be able to continue to pursue extremely ambitious ideas with far less restraint.
>Character.AI co-founder Daniel De Freitas is also joining Google with some other employees from the startup. Dominic Perella, Character.AI’s General Counsel, is becoming an interim CEO at the startup.
So basically leaving a shell of a company and the GC to try and run it / wind it down.
Yes. Character.ai usage is way down from the peak and it is only getting easier for startups to compete in the space. However, the plausibility of an actual FAANG acquisition is almost zero, so this is the next best option… at least for certain stakeholders. Microsoft did this with Inflection.
Character.ai could've been at $100mm+ ARR if they did a bit more of a monetization push based on my very rough estimates. If it was an acquisition I would've been imagining $3b+ price range.
Huge get by Google! (Side note, Gemini 1.5's new alpha release from this week is now at the top of the lmsys leaderboard and sentiment on twitter for it is that it's strong, maybe as strong as sonnet 3.5, so it'll continue to be an interesting race between meta, openai, anthropic, gdm.)
Edit: Okay perhaps it's - Noam keeps his C.ai stock, gets a big pay package from Google ($5mm-$15mm/year kinda range? not sure). Most of the value in C.ai remains, and he keeps his stock.
Noam is pre-IPO google with extensive work done on the most important infrastructure in the company's history; likely he has large monetary reserves as well as a pool of investors more than happy to give him money simply to continue doing his research, regardless of future revenue. You can assume that in returning to google, he will get some base pay which will be prodigious, but also extensive pay in the form of bonuses and stock. From what I know of him, the real motivation is to get more access to large TPUs.
I imagine he still had 15%+ of the company, so if there was a big payout, he would've gotten a big slice. Treat all my estimates with a grain of salt, though, please. I'm imagining he didn't get a huge payout and he actually kept most of his equity?
This is another inflection style "acquisition." Highly unethical of the founders and screws over all your employees and investors who are left holding the bag.
For those asking, c.ai has very high cost and looks like a typical consumer company that burns money for use, so they were decent on revenue but not near profitability.
> Character’s leaders told staff on Friday that investors would be bought out at a valuation of about $88 per share. That’s about 2.5 times the value of shares in Character’s 2023 Series A, which valued the company at $1 billion, they said.
> investors would be bought out at a valuation of about $88 per share. That’s about 2.5 times the value of shares in Character’s 2023 Series A, which valued the company at $1 billion
Those investors almost certainly have a liquidation preference. How much did employee shareholders get? I'd guess zero.
"I am confident that the funds from the non-exclusive Google licensing agreement, together with the incredible Character.AI team, positions Character.AI for continued success in the future,” Shazeer said in a statement given to TechCrunch."
That's a pretty hilarious statement from a Founder/CEO, given the circumstances.
To do better by the employees, the CEO really should have fought harder to have the whole company get acqui-hired, even if Google would have shut down the service. Maybe there were some other considerations that I’m not seeing (ie. There are good reasons the company should be kept going, and there’s a good path to success even without Noam. The article doesn’t specify how many employees are going over, so it’s hard to tell.) Landing the employees a relatively cushy Google SWE gig after helping build your company is the least you could do for them.
I'm also wondering how much money they spend on legal fees, given that they are copying then likenesses of many celebrities without their permission (that's the only way I've heard abot them before).
Have some familiarity with the players here. The founders are core model nerds and accidentally happen upon success as a majority sex chat product. They have little interest in that and investors are likely saying they won’t support any more core model research. The Google deal lets the founders go back to doing core model work for Google and the company to focus on a consumer only product that uses third party models.
What do you mean by this? Fundamental research? It makes sense, most of the innovations now will be in things like clever caching mechanisms and reducing compute.
AI is quickly becoming a commodity which is awesome for consumers. I think we’re going to see a huge shakeout of companies who dazzled with the initial allure of LLMs being replaced by the “killer AI apps” where we really start to rethink modern computing.
>In a big move, Character.AI co-founder and CEO Noam Shazeer [...]
It's like those rich guy/poor guy jokes.
Poor guy leaves his job, tries bootstrap its own company and fails, comes back to its old job. "What a loser".
Rich guy leaves his job, gets 150M to start a company in a blue ocean with a significant competitive advantage over 99.99% of humans alive. Still manages to fail and comes back to its old job. "What a bold move!"
People seem to forget or be unaware running a startup is far from cozy and usually doesn't work out - it isn't for everyone and honestly - isn't for most.
The more money you raise the more the pressure - and for deep researchers, this is usually noise that takes you away from your passion.
Shazz may be the kind of person that just wants to concentrate on research and doesn't really care about the rest...
I haven't used Character.ai personally, but assuming the user base is the same as the Silly Tavern userbase, and assuming that the Silly Tavern user base is accurately represented by the subreddit, then it's like 95% ERP
1. Find an unhappy senior AI exec from who's published a few papers who's published a few papers.
2. Start a new org around them and hire a few key people with crazy salaries (which you can offer cause the time horizon for the company isn't that long).
3. Train a few models, release some good looking benchmarks (bonus points if big tech lend you their GPUs as part of some 'accelerator deal').
4. Maybe find PMF and become incredibly rich.
4. If that fails, sign a massive but undisclosed licensing deal for your tech with big tech and give them your staff.
Seems like a good way to take big bets in AI, while hedging most of the risk.
In the CNN boom days after alexnet the playbook was: take your research lab, slap a c crop and new logo on it, keep doing your research and get acquired by FANG for high 8 figures.
Only difference in this cycle is that you can't do real LLM research in academia these days so all of the top researchers are already at FANG.
This playbook won't work within a year as M&A market cools and everyone wakes up to the real truth - that no one has any edge in LLM / AI infra development
In contrast to something like Adept.ai, this appears just be the CEO + some key employees exiting, not a complete team poaching that leaves the company a shell of what it was.
It doesn't necessairly imply Character.ai's business isn't doing well, but a CEO leaving is still indeed weird.
Key quote (from Character.AI):
“Over the past two years, however, the landscape has shifted; many more pre-trained models are now available. Given these changes, we see an advantage in making greater use of third-party LLMs alongside our own. This allows us to devote even more resources to post-training and creating new product experiences for our growing user base.”
My interpretation is that Character.AI realized they don't actually need to train their own foundation models from scratch to support their product - they can build cheaper, faster and probably better if they use LLMs trained by other companies (could be GPT-4o/Claude/Gemini via APIs, could be Llama 3.1 self-hosted).
If they're not training foundation models any more, the talents of people like Noam Shazeer aren't so important to them. They need to focus on product development instead.
I think this highlights the winner-take-all stakes of intelligence. It also suggests that there is little to be gained by specialization. Building a brand might actually be more short-term profitable since you can swap in the latest AI models as they become available. In other words, if advancing the SOTA AI is your dream, a product company may not be the right place. And if building a product company is your dream, then building foundational AI might not be the best strategy.
> if advancing the SOTA AI is your dream, a product company may not be the right place.
Does Meta get in the way of this?
It's hard to compete with a company that is dead set on spending billions and seemingly wants to drive your SOTA AI product revenue to 0.
If you are OpenAI or Anthropic right now, it seems like trying to run a great restaurant at a reasonable price right next to a good (great?) restaurant that is serving everyone for free.
8 replies →
Specializing will happen in product implementation, not model implementation.
LLMs are become akin to tools, like programming languages. They’re blank slates, but require implementation to become special.
I'd argue that their own foundational models are getting outperformed by the Llama finetunes on HF and at this point they're shifting cost structures (getting rid of training clusters in favor of hosted inference).
Strange take since Noam was CEO. He didn't get kicked out. He left. Character AI and remaining employees is going to have a tough time ahead for survival as Google gouged it empty.
> If they're not training foundation models any more, the talents of people like Noam Shazeer aren't so important to them.
Why is the CEO important to model development regardless of talents? They've raised $150m+, have $15m+ ARR and ~200 employees, etc. Shouldn't the CEO be CEOing?
Edit: reading the comments below, it seems like maybe he thought the expected value of attempting to clear the hurdle of their valuation/liquidation preferences at a $250k/year salary as CEO was lower than a $5m+/year salary/RSUs from Google?
Noam Shazeer is a long-time googler who worked on machine learning for quite some time (take a look at his patent history, for example https://scholar.google.com/citations?view_op=view_citation&h...)). He was a favorite of Jeff Dean and did some of the most impressive work on ML that I saw at Google. I think at some point in the past, Noam saw that google wasn't supporting his work very well (google research went through a dark time where many researchers with creative ideas were shut down, either for business or reputation reasons, see https://www.businessinsider.com/google-ai-characterai-ceo-no...) and I figure he made a startup because it was a more convenient position for him to do research, even if there wasn't a strong revenue model. Now he returns to Google in a position of deep strength and will be able to continue to pursue extremely ambitious ideas with far less restraint.
I think your strongly strongly overestimate how fast Google Forgets about you. Deep strength is a very rosey way to Put it.
They forget about most people quick. Noam Shazeer is not most people.
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You should see the reaction of Google employees on Twitter, it's as if Jesus came back from the dead.
2 replies →
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>Character.AI co-founder Daniel De Freitas is also joining Google with some other employees from the startup. Dominic Perella, Character.AI’s General Counsel, is becoming an interim CEO at the startup.
So basically leaving a shell of a company and the GC to try and run it / wind it down.
Is this a cheat code for doing an acquisition without FTC scrutiny?
Yes. Character.ai usage is way down from the peak and it is only getting easier for startups to compete in the space. However, the plausibility of an actual FAANG acquisition is almost zero, so this is the next best option… at least for certain stakeholders. Microsoft did this with Inflection.
4 replies →
This almost seems exactly it, just as the last paragraph of the TechCrunch article hints at.
And screw investors
5 replies →
I'm puzzled. Did Noam get $500mm+ from this?
Character.ai could've been at $100mm+ ARR if they did a bit more of a monetization push based on my very rough estimates. If it was an acquisition I would've been imagining $3b+ price range.
Huge get by Google! (Side note, Gemini 1.5's new alpha release from this week is now at the top of the lmsys leaderboard and sentiment on twitter for it is that it's strong, maybe as strong as sonnet 3.5, so it'll continue to be an interesting race between meta, openai, anthropic, gdm.)
Edit: Okay perhaps it's - Noam keeps his C.ai stock, gets a big pay package from Google ($5mm-$15mm/year kinda range? not sure). Most of the value in C.ai remains, and he keeps his stock.
Noam is pre-IPO google with extensive work done on the most important infrastructure in the company's history; likely he has large monetary reserves as well as a pool of investors more than happy to give him money simply to continue doing his research, regardless of future revenue. You can assume that in returning to google, he will get some base pay which will be prodigious, but also extensive pay in the form of bonuses and stock. From what I know of him, the real motivation is to get more access to large TPUs.
Having personally met him, this was my impression. He has zero concerns about finance.
Actually a nice and polite guy, too.
> I'm puzzled. Did Noam get $500mm+ from this?
where did you get $500mm number?..
I imagine he still had 15%+ of the company, so if there was a big payout, he would've gotten a big slice. Treat all my estimates with a grain of salt, though, please. I'm imagining he didn't get a huge payout and he actually kept most of his equity?
6 replies →
I suppose a lot of the current batch don't have a business model that is sustainable. Another candidate is stability ai.
This is another inflection style "acquisition." Highly unethical of the founders and screws over all your employees and investors who are left holding the bag.
For those asking, c.ai has very high cost and looks like a typical consumer company that burns money for use, so they were decent on revenue but not near profitability.
> Character’s leaders told staff on Friday that investors would be bought out at a valuation of about $88 per share. That’s about 2.5 times the value of shares in Character’s 2023 Series A, which valued the company at $1 billion, they said.
https://www.theinformation.com/articles/google-hires-charact...
> investors would be bought out at a valuation of about $88 per share. That’s about 2.5 times the value of shares in Character’s 2023 Series A, which valued the company at $1 billion
Those investors almost certainly have a liquidation preference. How much did employee shareholders get? I'd guess zero.
"I am confident that the funds from the non-exclusive Google licensing agreement, together with the incredible Character.AI team, positions Character.AI for continued success in the future,” Shazeer said in a statement given to TechCrunch."
That's a pretty hilarious statement from a Founder/CEO, given the circumstances.
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got it. so instead of employees and investors screwed, only employees are screwed..
To do better by the employees, the CEO really should have fought harder to have the whole company get acqui-hired, even if Google would have shut down the service. Maybe there were some other considerations that I’m not seeing (ie. There are good reasons the company should be kept going, and there’s a good path to success even without Noam. The article doesn’t specify how many employees are going over, so it’s hard to tell.) Landing the employees a relatively cushy Google SWE gig after helping build your company is the least you could do for them.
When you don't understand reasoning, always look at who the beneficiaries are in these situations.
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I'm also wondering how much money they spend on legal fees, given that they are copying then likenesses of many celebrities without their permission (that's the only way I've heard abot them before).
Everybody has a price
don't forget Adept
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Have some familiarity with the players here. The founders are core model nerds and accidentally happen upon success as a majority sex chat product. They have little interest in that and investors are likely saying they won’t support any more core model research. The Google deal lets the founders go back to doing core model work for Google and the company to focus on a consumer only product that uses third party models.
> core model research
What do you mean by this? Fundamental research? It makes sense, most of the innovations now will be in things like clever caching mechanisms and reducing compute.
AI is quickly becoming a commodity which is awesome for consumers. I think we’re going to see a huge shakeout of companies who dazzled with the initial allure of LLMs being replaced by the “killer AI apps” where we really start to rethink modern computing.
This is likely an aqui-hire structured to not trigger an anti-trust probe.
If there was any real intent to give c.ai a chance as a real business they would have hired a new ceo before the announcement.
>In a big move, Character.AI co-founder and CEO Noam Shazeer [...]
It's like those rich guy/poor guy jokes.
Poor guy leaves his job, tries bootstrap its own company and fails, comes back to its old job. "What a loser".
Rich guy leaves his job, gets 150M to start a company in a blue ocean with a significant competitive advantage over 99.99% of humans alive. Still manages to fail and comes back to its old job. "What a bold move!"
> gets 150M to start a company
Oh there is a place where rich guys can "get" $150M, but poor guys couldn't.
I think the rank and file employees will keep vesting at the 2.5 bn valuation for the next two years, according to The Information
1 reply →
People seem to forget or be unaware running a startup is far from cozy and usually doesn't work out - it isn't for everyone and honestly - isn't for most.
The more money you raise the more the pressure - and for deep researchers, this is usually noise that takes you away from your passion.
Shazz may be the kind of person that just wants to concentrate on research and doesn't really care about the rest...
Seems like a way to do an "acquisition" while avoiding the brand risk of buying a mostly-porn company.
And I'm sure Google is hopeful that it also carries low regulatory risk from the FTC/DOJ
what is your basis for saying it is mostly-porn? they do a lot to make it SFW
I haven't used Character.ai personally, but assuming the user base is the same as the Silly Tavern userbase, and assuming that the Silly Tavern user base is accurately represented by the subreddit, then it's like 95% ERP
The new VC playbook could be.
1. Find an unhappy senior AI exec from who's published a few papers who's published a few papers. 2. Start a new org around them and hire a few key people with crazy salaries (which you can offer cause the time horizon for the company isn't that long). 3. Train a few models, release some good looking benchmarks (bonus points if big tech lend you their GPUs as part of some 'accelerator deal'). 4. Maybe find PMF and become incredibly rich. 4. If that fails, sign a massive but undisclosed licensing deal for your tech with big tech and give them your staff.
Seems like a good way to take big bets in AI, while hedging most of the risk.
In the CNN boom days after alexnet the playbook was: take your research lab, slap a c crop and new logo on it, keep doing your research and get acquired by FANG for high 8 figures.
Only difference in this cycle is that you can't do real LLM research in academia these days so all of the top researchers are already at FANG.
This isn't #4, there's no acquisition happening.
This playbook won't work within a year as M&A market cools and everyone wakes up to the real truth - that no one has any edge in LLM / AI infra development
Was this an Inflection.ai style acquisition considering C.AI was profitable?
In contrast to something like Adept.ai, this appears just be the CEO + some key employees exiting, not a complete team poaching that leaves the company a shell of what it was.
It doesn't necessairly imply Character.ai's business isn't doing well, but a CEO leaving is still indeed weird.
do we know they were profitable? I doubt it, if they pulled this. I think they had high DAU/MAU but low paid users.
this is basically Inflection 2.0.
All public information about their finances only mentions their revenue, not their profits, which means they're almost certainly not profitable.
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They are likely unprofitable.
Here’s their press release: https://blog.character.ai/our-next-phase-of-growth/
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