Court papers put both its assets and its debts at $50 million to $100 million. Disney will buy some assets and a perpetual technology license as the stalking-horse bidder, two years after Google paid $2.7 billion to license its models.
Character.AI reached a billion-dollar valuation within two years of its founding. Five years in, the floor price for its assets is $20 million.
The chatbot company sought Chapter 11 protection on Monday. Under the plan, Walt Disney would pay $20 million for a perpetual, non-exclusive license to some of the company's intellectual property and certain legal claims, plus transition services. Court papers put both what the company owns and what it owes somewhere between $50 million and $100 million.
Disney's agreement serves as a stalking-horse bid, setting a minimum price that other bidders must top in a court-supervised sale. So far, Chief Executive Colin Adams said, no bid to keep the platform running has surfaced.
"We hope that the sale process will yield an actionable proposal that will allow continued operations of the Character.ai platform," Mr. Adams said. "If such a bid is unavailable, however, the platform will be wound down."
Users can keep chatting while the auction runs. Mr. Adams expects it to wrap up around the turn of November into December.
The capital that went in
Backers including Andreessen Horowitz, Lightspeed, Greycroft and SV Angel put in more than $193 million over several rounds, PitchBook data show. A $150 million raise led by Andreessen Horowitz first lifted the company's valuation past $1 billion.
Two summers ago Google paid $2.7 billion for a license to the company's models and rehired both founders. Disney's floor bid is less than 1% of that licensing deal and about a tenth of the venture money raised.
What brought it here
The company faced lawsuits over teen safety, including a wrongful-death suit over a 14-year-old user, as well as copyright claims, and struggled to scale. In January the company and Google agreed to settle that suit and several others, and it has tightened safety tools and barred users under 18 from open-ended chats. Former chief executive Karandeep Anand recently joined Disney along with other Character.AI employees, who will provide transition services under the deal.
The cap table
The 2024 Google deal licensed the models and brought the founders back to Google, while the startup and its investors kept the operating business. In a court sale with a $20 million floor and liabilities of up to $100 million, equity holders stand behind creditors in the order of repayment.
Market implications
One reading is that this is a warning about the value left behind in AI license-and-hire deals. Once a startup's founders and model work move to a larger company, the remaining platform may carry legal costs and little bargaining power.
A second reading is that the case is specific to Character.AI's legal exposure. Safety litigation against a consumer chatbot used by teenagers is a different risk from that faced by enterprise AI companies.
What to watch
The court's approval of bidding procedures, the deadline for competing bids and the sale hearing will show whether any buyer values the platform above Disney's floor or whether it is wound down.