In 2022, Noam Shazeer and Daniel de Freitas left Google because of slow artificial intelligence development. They founded Character.AI and raised nearly $200 million for their chatbot startup. Now, they have returned to Google in a deal that marks a new trend in Silicon Valley.
Last week, Shazeer and De Freitas announced their return to the tech giant. Google agreed to pay $3 billion to license Character.AI's technology without acquiring the company. About 20% of Character.AI's employees will join Google along with the founders.
This deal departs from the usual practice in Silicon Valley, where big tech companies buy startups outright. According to sources, Google earmarked $2.5 billion to buy out Character.AI shareholders, including Shazeer, who could receive up to $1 billion.
The rest of the startup will continue to operate without its founders and investors. Folha de SP reported that such deals have been driven by large companies' desire to avoid regulation. The FTC and other regulators are investigating these transactions, which appear to be covert acquisitions.
The deal between Google and Character.AI joins a series of unusual transactions in the AI space. Microsoft started this trend by paying $650 million to Inflection to license its technology and hire its founder. Amazon followed with a similar deal with Adept for $330 million.
These transactions allow startup founders to continue working on their projects, now backed by large companies, without worrying about funding. At the same time, they provide quick returns to investors, as in the case of Character.AI, where investors achieved a return of 2.5 times their initial investment.
Despite the benefits, these deals leave corporate entities without original leaders behind. Remaining employees at startups such as Character.AI, Inflection, and Adept are not entitled to share in the profits from these deals, creating uncertainty about their future. Regulators continue to keep a close eye on these practices, which could lead to increased oversight soon.
