Marc Andreessen’s venture capital firm Andreessen Horowitz has led an investment of more than $200mn into generative artificial intelligence chatbot company Character.ai, marking the early internet pioneer’s first significant foray into the booming sector.
The investment of between $200mn-$250mn values the company at about $1bn, according to multiple people with knowledge of the deal terms.
Character.ai uses large language models — the technology that underlies chatbot ChatGPT — to generate conversation in the style of various characters, including Tesla chief executive Elon Musk and Nintendo character Mario, from user prompts.
The chatbot company was founded by Noam Shazeer and Daniel De Freitas, who previously built Google’s conversational model LaMDA. Launched less than six months ago, it has raced to its $1bn valuation on the back of growing excitement about the potential of the technology to disrupt everything from customer service and copywriting to medical diagnostics.
Andreessen’s investment is the latest sign that the hype around the sector is crystallising into major deals and leading to a surge in valuations, after Microsoft and Google struck big partnership agreements with generative AI companies OpenAI and Anthropic, respectively, earlier this year.
Andreessen is regarded as a Silicon Valley bellwether. He launched early web browser Netscape in 1994 and is also the founder and figurehead of venture fund Andreessen Horowitz, which has ridden a boom in technology company valuations to become one of the most prominent investors in the sector since its launch in 2009.
Having made early bets on Airbnb, ride-sharing app Lyft and payments company Stripe, Andreessen Horowitz manages $35bn worth of assets across its funds.
But some of Andreessen’s bets have not fared so well. A 2014 prediction that the technology behind cryptocurrency bitcoin would eventually assume a similar significance as the internet is yet to bear out.
Amid a punishing downturn which has eviscerated previously fast-growing tech companies in public and private markets, venture investors are hoping that generative AI will provide some respite, and start-ups in the space are cashing in.
Inflection, the year-old generative AI start-up set up by DeepMind co-founder Mustafa Suleyman and LinkedIn creator Reid Hoffman, is in discussions to raise up to $675mn. The company plans to release an AI personal assistant later this year.
Hoffman announced in a LinkedIn post on Friday that he is stepping down from the board of OpenAI to avoid potential conflicts of interest. “With all the possibilities ahead, it’s important to think beyond any one application, company, industry when it comes to AI, because I believe its impact will be on a much greater magnitude.”
Cohere, another generative AI start-up founded by Google alumni, is raising funds at a valuation of about $6bn, according to multiple people with knowledge of its efforts, having last completed a funding round less than 18 months ago.
“We will remember this year as when AI triggered an explosion [in innovation],” said Vinod Khosla, founder of Khosla Ventures, which was the first venture firm to invest in ChatGPT-creator OpenAI in 2019. “Eighty per cent of economically valuable functions will be done by AI within 20 years,” he predicted.
Andreessen Horowitz declined to comment. Character.ai did not immediately return a request for comment.