Lemon Slice raises $10.5 million to build interactive AI avatars

Lemon Slice, a digital avatar generation company founded in 2024, announced on Tuesday that it has raised $10.5 million in seed funding. The startup currently has eight employees. The funding round was led by Matrix Partners, with participation from:

• Y Combinator
• Arash Ferdowsi, the Dropbox CTO
• Emmett Shear, the Twitch CEO
• The Chainsmokers

The capital will support Lemon Slice’s development of a video layer for AI agent chats. The company is developing a diffusion model—a generative AI model type—designed to create interactive digital avatars from a single image.

The startup’s model, called Lemon Slice-2, is a 20-billion-parameter system capable of livestreaming video at 20 frames per second on a single GPU. The model can create digital avatars from a single image that work on top of a knowledge base. These avatars can play roles such as addressing customer queries, helping with homework, or acting as a mental health support agent. For voice generation, Lemon Slice uses technology from ElevenLabs. To address safety, the company has guardrails to prevent unauthorized face or voice cloning and uses large language models for content moderation.

The company faces competition from video generation startups including D-ID, HeyGen, and Synthesia, as well as other digital avatar makers Genies, Soul Machine, Praktika, and AvatarOS. However, Lemon Slice co-founder Lina Colucci argues that existing market offerings fall short. “The existing avatar solutions I’ve seen to date add negative value to the product. They are creepy, and they are stiff. They look good for a few seconds, and as soon as you start interacting with them, it feels very uncanny, and it doesn’t put you at ease. The thing that has prevented avatars from really taking off is that they haven’t been good enough.”

To overcome the uncanny valley—the unease caused by human-like objects—Lemon Slice is taking a different technical path. Ilya Sukhar, a partner at Matrix Partners, stated that the startup is taking the generalized bitter lesson scaling approach—the superiority of general-purpose scaling methods—of data and compute that has worked in other AI modalities. Jared Friedman, a partner at Y Combinator, believes that Lemon Slice is the only company taking a fundamental machine learning approach that can eventually overcome the uncanny valley and break the avatar Turing test. Friedman noted that because the company trains a general-purpose video diffusion transformer end-to-end, the technology has no ceiling on how good it can get, whereas competitors top out below photorealistic quality.

Why it matters

Lemon Slice is betting that using its own general-purpose diffusion model for making avatars will set it apart from competitors, aiming to overcome the uncanny valley that has prevented other avatars from taking off.