Artificial intelligence startups Anthropic AI and Character Technologies Inc. are reportedly closing on blockbuster funding rounds backed by a number of high-profile venture capital firms, according to reports this weekend.

In the case of Anthropic, the New York Times Friday cited two people with knowledge of the matter as saying it’s zeroing in on a $300 million round of funding. Character AI, meanwhile, has told investors it’s seeking $250 million in fresh funding, according to a report Friday in The Information.

The proposed rounds are yet more evidence of the incredible excitement generated by the potential of so-called “generative AI,” which refers to AI algorithms that can generate text, images,and other media when prompted to do so by users. It’s an exciting technology that has made hundreds of headlines following the launch of OpenAI LLC’s ChatGPT AI model last year. ChatGPT has amazed more than 1 million users through its ability to answer almost any kind of question with humanlike clarity.

Generative AI has been the subject of years of research and it seems that these efforts are finally beginning to pay off. Analysts believe the capabilities displayed by ChatGPT could be useful in dozens of applications, and perhaps even rival Google LLC in online search.

ChatGPT’s success recently prompted Microsoft Corp. to invest an additional $10 billion in OpenAI, and now other investors are determined to get in on the action by backing its most promising rivals.

Anthropic is one such company. Started by former OpenAI employees, it has already raised more than $700 million in funding. It ‘ the creator of an AI chatbot named Claude that’s similar to ChatGPT. Currently, it’s only available in beta via a Slack integration, though reports say that it has demonstrated significant improvements over its more famous rival.

Anthropic’s creators told TechCrunch in an interview that they created Claude using a process known as “Constitutional AI,” which involves creating a list of 10 principles that act as a kind of “constitution” for the system. The principles haven’t been revealed, but Anthropic says they’re based on concepts such as beneficence, non-maleficence and autonomy. The idea is to align Claude with human intentions and enable it to respond to questions without deviating from this guiding set of principles.

The proposed $300 million funding round for Anthropic would value the company at roughly $5 billion, the Times reported.

As for Character AI, it was founded by two former Google researchers who previously worked on that company’s internal LaMDA system. It has reportedly created a neural language model chatbot web application based on LaMDA that is able to generate humanlike text responses and participate in contextual conversation.

With Google still much more cautious about AI responsibility and safety, Character.ai’s co-founders Noam Shazeer and Daniel De Freitas told the Washington Post that they left the company in order to bring the technology into the public realm as quickly as possible. The result is a fun website that lists multiple AI chatbots based on Character.ai’s models, where anyone can chat with a virtual Donald Trump, Elon Musk, Chinese President Xi Jingping, the infamous Walter White of “Breaking Bad,” and many other characters real and fictional.

If Character AI is able to get the $250 million it’s seeking, that would bring its value to at least $1 billion, The Information reported. It has reportedly held talks with top-tier VCs including Sequoia Capital, though discussions are still at an early stage and it remains to be seen if they will succeed.

The stakes are high for investors, who have shown big enthusiasm for generative AI at a time when funding for many other startups appears to be drying up. For the VCs, choosing the right generative AI startup is key, because it’s rare for them to back more than one company in the same category, for competitive reasons. So backing the wrong horse now could mean they miss out on what has the potential to be an incredibly lucrative and transformational new technology movement.

The Times says there are reports that other generative AI startups, such as Luka Inc., the creator of another chatbot technology called Replika, and You.com, which aims to integrate generative AI with online search, are also receiving unsolicited attention from VCs.

VCs will be aware that generative AI is still a very new technology and that none of these startups has really figured out how they’re going to make money. That said, this has rarely dissuaded Silicon Valley investors in the past, with the standard operating model being to pour money into new technologies and enable adoption, before working out how to make money from them later.

Image: Character AI