Return of Founders to Google
In 2022, Noam Shazeer and Daniel De Freitas made a significant career shift when they departed from their positions focused on artificial intelligence at Google. Both expressed frustrations regarding the tech giant’s pace of innovation, feeling it was far too slow. This prompted them to establish Character.AI, an innovative chatbot startup, which successfully raised nearly $200 million in funding.
However, recent developments have taken a surprising turn. Last week, Shazeer and De Freitas announced their decision to return to Google. They struck a remarkable deal to rejoin the company’s A.I. research division, taking with them around 20 percent of Character.AI’s workforce. The agreement also includes the incorporation of their startup’s cutting-edge technology into Google’s offerings.
Interestingly, despite Google acquiring access to this valuable technology, it has not opted to purchase Character.AI outright. Instead, reports indicate that Google has agreed to a licensing arrangement worth $3 billion. Approximately $2.5 billion of that total will be allocated to buy out the shareholders of Character.AI, which includes Mr. Shazeer, who holds a significant stake of 30 to 40 percent in the company. As a result, he stands to gain between $750 million and $1 billion from this transaction, according to sources familiar with the deal. The remaining segment of Character.AI will continue to operate independently, albeit without its original founders and key investors.
This transaction is part of a broader trend of atypical dealings emerging from Silicon Valley. Historically, major tech firms have opted for straightforward acquisitions of startups. However, in the evolving landscape of artificial intelligence, they are increasingly pursuing more complex deal structures. These structures often involve licensing technology and hiring top talent, allowing them to effectively absorb the startup and its core assets without officially owning the company.
Industry insiders suggest that these transactions are primarily motivated by the desire of major tech companies to circumvent regulatory scrutiny. Companies like Google, Amazon, Meta, Apple, and Microsoft are currently under intense examination by regulatory bodies such as the Federal Trade Commission, as concerns grow regarding their potential to stifle competition through acquisitions of smaller firms. Justin Johnson, a business economist specializing in antitrust issues at Cornell University, commented on this trend, stating, “Large tech firms may clearly be trying to avoid regulatory scrutiny by not directly acquiring the targeted firms. But these deals do indeed start to look a lot like regular acquisitions.”
