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Character.AI, an artificial intelligence start-up founded by two former Google employees, is capitalizing on venture capitalists' unquenchable thirst for deals in technology's hottest space.

The two-year-old company said on Thursday that it raised $150 million at a $1 billion valuation in a funding round led by Andreessen Horowitz. Noam Shazeer and Daniel De Freitas, who helped created the architecture used in popular chatbots, left Google in 2021 and founded Character.AI the same year.

Character.AI said in a press release announcing the funding that its technology gives "users the ability to create a fully-customizable and personalized AI companion with a distinct personality and values."

The financing round follows major efforts by Google and Microsoft to develop and embed chatbot software into key products, bringing AI-generated responses into things like search, documents and email. Big tech companies and VCs are rushing into the market after Microsoft-backed OpenAI released ChatGPT to the public in November and saw the free experimental service go viral.

In January, Microsoft announced a ChatGPT-integrated Bing search engine. Earlier this week, Google launched a test version of its chatbot Bard.

"There are some overlaps, but we're confident Google will never do anything fun," Freitas told Axios, regarding Bard. "Because we worked there.

Character.AI said the fresh capital will allow it to expand its "compute abilities resulting in a more sophisticated model with advanced reasoning and greater accuracy." The money will help the company grow its 22-person team and add technical abilities. The company said it's nearing 100 million site visits per month, a four-fold increase in two months."

The 10-figure valuation for a company that's reportedly pre-revenue is reminiscent of other recently hyped technologies like crypto (or more broadly Web3) and social audio. Andreessen Horowitz has been a significant player in driving up prices in both markets. The firm announced a $4.5 billion crypto fund in mid-2022 as the digital currency market was in freefall. A year earlier, it added to its investment in audio app Clubhouse, valuing the early-stage startup at $4 billion. The Clubhouse buzz quickly quieted as the post-lockdown economy reopened.

Character.AIdidn't provide additional comment.

Sarah Wang, a partner at Andreessen Horowitz, said in the release that Character.AI is rapidly and dramatically advancing generative AI, with the potential to transform how humans connect not just with AI, but more broadly reinvent how we interact with technology as a whole in our everyday lives.

Other investors include former GitHub CEO Nat Friedman, Elad Gil, A Capital and SV Angel.

Jill Chase, who leads AI investments at Alphabet's late-stage venture group Capital G, previously told CNBC that Shazeer is the type of person who "can go into their basement for 18 months and change the world."

"I've spent a lot of time with Noam," she said. "He is an exceptional technologist."

Watch: AI arms race

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Ex-Google employees' A.I. chatbot startup valued at $1 billion after Andreessen Horowitz funding - CNBC