What this bankruptcy says about AI startups
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says → say → startups
You're reading a newsletter from The Indicator from Planet Money.
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You → read → Money
Once a week, we curate our favorite stories and insights on business, finance, economics and why they matter.
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they → curate → business
After you win the economics Nobel, what would your first act be?
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act → win → Nobel
For co-winner Michael Woodford, his first act was … proctor an exam.
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act → proctor → exam
The DAY that Columbia professor Michael Woodford found out that he and Robert Hall won the economics Nobel, he returned to his class with the pithy title "Cognitive Mechanisms and Economic Behavior" to administer an exam.
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he → find → exam
He was welcomed to the classroom with cheers and applause.
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He → welcome → cheers
He held up his arms in triumph.
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He → hold → triumph
Coming up:
- Character.ai is going through bankruptcy.
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Character.ai → come → bankruptcy
What can we learn from the AI startup's decline?
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we → learn → decline
- Why President Trump wants to import diesel fuel from Russia
- Why stagflation was John Maynard Keynes' Achilles' heel
News We're Watching
When AI startups get vacuumed up, what's left behind?
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what → want → Russia
Character.ai is a company that allows you to speak with a "companion" — an AI-powered fictional character, historical figure, or whatever you decide to build.
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you → allow → whatever
It came out just before ChatGPT and quickly went viral in part thanks to its adoption on TikTok.
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It → come → TikTok
It hit 28 million monthly active users at its peak.
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It → hit → peak
Character.ai had a lot of engagement, a big customer base, lots of talent … and Google promptly picked 'em up for $2.7 billion back in 2024.
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Google → have → 2024
But Google didn't buy the company and absorb it!
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Google → buy → it
No, that traditional "acquihire" model would require all sorts of legal and regulatory approvals.
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model → require → approvals
Instead, they hired away the founders (and other big hitters on the team) and bought the nonexclusive license to the technology, leaving the company itself behind.
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they → hire → company
That's called a "reverse acquihire," and it's happened at least six times in the past two years with AI startups.
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it → call → startups
Now this week, Character.ai is filing for Chapter 11 bankruptcy.
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Character.ai → file → bankruptcy
Why it matters: A "reverse acquihire" doesn't leave a company in the greatest position.
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acquihire → matter → position
After the Google deal, Character.ai had to change its business model away from the quite costly LLM training and toward developing AI characters.
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Character.ai → have → characters
Its founders were gone.
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founders → go → ?
Sure, the shrunken company had $2.7 billion in the bank, but leadership was still looking to raise money as they struggled to monetize their user base.
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they → have → base
So is the "reverse acquihire" what caused the pain?
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what → cause → pain
Character.ai faced a mountain of litigation over alleged harm to minors plus copyright concerns from Disney.
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Character.ai → face → Disney
So what's left behind?
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what → leave → ?
A once very promising company, which Disney is very excited to pick over for parts of it for $20 million.
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Disney → pick → million
Will this Russian diesel deal affect price?
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deal → affect → price
What's going on: President Trump signed a deal last week to get diesel from Russia in an effort to lower fuel prices ahead of the midterms.
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Trump → go → midterms
Two weeks ago, we talked in the newsletter about the potential of a diesel export ban to lower prices.
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we → talk → prices
It didn't happen.
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It → happen → ?
One week ago, we talked again about Trump issuing an executive order to defer a tax from diesel.
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Trump → talk → diesel
It's safe to say people were surprised by the move, given Trump signed a Russian sanctions law just last month that looked to tamp down on their energy revenues.
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that → say → revenues
Beyond surprise, a bipartisan group of senators is openly calling for the president to rescind the deal.
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president → call → deal
They said it gives Putin the funds to power his war machine and "enables Russia to continue its brutal attacks on Ukrainian civilians."
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it → say → civilians
Will this do anything?
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this → do → anything
The same bipartisan group of senators said this deal will mean "limited to no relief to Americans."
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deal → say → Americans
Goldman Sachs estimated the release of Russian oil would affect wholesale prices by $1 to $2 per barrel.
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release → estimate → barrel
Neil Atkinson, an independent energy analyst, says, "Frankly, [it's] a rounding error.
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it → say → ?
…and 25 more, not listed.
The Aporia
