TMTPOST--The founders of Character.AI, a leading artificial intelligence startup, are returning to Google alongside key team members through an acquisition that valued their startup at more than US$2.5 billion.

Noam Shazeer and Daniel De Freitas, together with select members of Character.AI's research team, will join Google's AI division, DeepMind, according to announcements made on Friday. The startup was valued at US$5 billion last September.

Character.AI, known for utilizing large language models (LLMs) to enable users to create and interact with chatbots, achieved a $1 billion valuation amid the AI surge in March 2023. Although it was not generating revenue at the time, the startup indicated plans to introduce a subscription service in the future.

Shazeer and De Freitas left Google in 2021 after their proposals to advance a chatbot project were reportedly declined. They founded Character.AI the same year. De Freitas had previously criticized Google's slow pace, telling Axios in March that "Google will never do anything fun," in reference to the Bard, now known as the Gemini chatbot.

Character.AI has agreed to provide Google with a non-exclusive license for its current LLM technology. The company's blog post explained, "This agreement will provide increased funding for Character.AI to continue growing and to focus on building personalized AI products for users around the world."

The blog post further noted, "Over the past two years, however, the landscape has shifted — many more pre-trained models are now available. Given these changes, we see an advantage in making greater use of third-party LLMs alongside our own. This allows us to devote even more resources to post-training and creating new product experiences for our growing user base."

Amid criticism that Alphabet was lagging behind OpenAI's ChatGPT in the AI chatbot arena, Google has restructured to accelerate its market presence. Reports from late last year indicated that Google was considering a significant investment in Character.AI.

In a statement posted on Friday, Shazeer expressed his excitement about rejoining Google, saying, "I am super excited to return to Google and work as part of the Google DeepMind team. I am so proud of everything we built at Character.AI over the last three years. I am confident that the funds from the non-exclusive Google licensing agreement, together with the incredible Character.AI team, position Character.AI for continued success in the future."

"We're particularly thrilled to welcome back Noam, a preeminent researcher in machine learning, who is joining Google DeepMind's research team, along with a small number of his colleagues," said a Google spokesperson.

Google had previously supported Character.AI with cloud computing services, advanced chip access, and convertible debt financing. In the weeks leading up to the acquisition, Character.AI removed romantic chatbot features to comply with regulations, reflecting increased efforts to secure the company’s operations.

The acquisition sees Character.AI’s team integrating into Google's ecosystem, with unvested employee options continuing to vest at $88 per share until July 2026. These options will be funded through a licensing agreement, although funding for the options will cease after two years.

The AI sector has seen a surge in acquisitions as high R&D costs and commercialization challenges drive startups to seek buyouts from larger tech companies. AI unicorns Adept and Inflection were acquired by Amazon and Microsoft, respectively. These acquisitions are attracting scrutiny from regulatory bodies like the Federal Trade Commission, which is investigating Microsoft's deal with Inflection.

In China, Tsinghua-affiliated AI company AI Being, known as the "Chinese Character.AI," was acquired by Zhipu AI, a leading Chinese AI large model company.