Canadian entrepreneurs Peter Fitzpatrick and Robyn Campbell figured last October they’d proven their business concept well enough to quit their jobs when their product—a generative AI-powered stuffed bunny named Beanie—placed third in a hackathon at a TED AI conference in San Francisco.

The life and business partners—Fitzpatrick, then head of commerce for Vancouver-based Thinkific, and Campbell, a freelance screenwriter for children’s shows who most recently worked for Lego—want to build a line of these plush robots to befriend kids, help them process emotions and develop important life skills. 

Emboldened by their success at the TED event, the couple launched their San Francisco-based startup, Fawn. Their first market iteration, a baby deer stuffie also named Fawn for kids aged eight and up, is now available for pre-orders at US$199 and expected to start shipping in April.

The firm is a new entrant in a burgeoning category as entrepreneurs look to harness advances in generative AI with products that resonate with parents and kids. But the hurried release and proliferation of smart toys has led to concerns about children’s safety and privacy, as humans still work to understand the technology’s limitations and risks.

“I’m going to guess, by next Christmas, there’ll be dozens on the market,” said Jen Caltrider, director of the Mozilla Foundation’s program *Privacy Not Included, a buyer’s guide for tech-enabled products.

When Mozilla Foundation released its holiday shopping guide in November, it noted these toys, which it declared among the “worst in class” for privacy, were on the rise. It included a review of Moxie, a US$799 AI-powered robot from California-based Embodied, which recently unveiled a smarter version of its original model. Other toys on the market include a US$99 beta-edition rocket-shaped stuffie from California-based Curio, created in partnership with and voiced by the singer Grimes; and a US$249 robot that Mumbai-based Miko bills as capable of developing “genuine friendship.” 

“It may feel crowded, but the size is massive,” said Fitzpatrick of the market opportunity. “Like, it’s every child, arguably every human … I think it’s still wide open.” The generative AI market is already estimated to be worth billions and predicted to grow to more US$1.3 trillion within a decade. Toys, of course, make up only a fraction of that, but the global smart toy market could reach more than US$35 billion by 2030, according to one projection.

Fawn is an animatronic stuffie with a speaker, microphone, touch sensors and ears that move to signify emotions. A cloud service powers its digital brain, and parents can set up Fawn through an app that lets them control how it interacts with their child. If they sign up for a monthly subscription, Fawn will retain memories of previous interactions. A marketing push that will include influencers is set for the summer.

Fawn’s creators refer to it as a sidekick or robot rather than a toy, pointing to its combination of entertainment and practical functions. In addition to chatting up a child for hours—conversing about, say, Taylor Swift, and keeping abreast of updates on her life and career while the child is doing other things—it can prompt kids to get ready for bed or study for upcoming tests. It can also help its owners process emotions by acknowledging how they feel and offering advice. That function was a key motivator for Fitzpatrick in creating the toy, due to his early-life experience of his parents’ drawn-out divorce.

The device has generated investment interest: while the company would not provide an exact number, it said it has raised a six-figure sum from angel investors, with more funding to come. Its first investor, Stanford University PhD student and AI expert Joon Sung Park, approached the founders after the Ted AI hackathon, which he helped judge. Others include Louis Kearns, a former Shopify vice-president, and Corinne Hua, CFO of Thinkific.

Hua declined to share the size of her stake, but said she bought in primarily out of confidence in Fitzpatrick, whom she hired at Thinkific. She’d also been impressed watching her kids play with a prototype of the toy, and was excited by the chance to invest in a Silicon Valley-built AI product. 

Still, some experts ask whether kids should be playing with these types of toys at all. 

Caltrider, of the Mozilla Foundation, noted that many are billed as emotional support or friends for kids, but to do that, the system must draw out personal information from the child. “There is no data minimization,” she said. The issue, then, is what data a toy is collecting and what amount of it is shared. Even if the maker isn’t passing the data to other companies, the customer has to trust its systems can withstand hackers and other breaches.

In some cases, the manufacturer allows parents to opt out of data sharing, but that can reduce functions enough to make the gadgets pointless. The companies also tend to place the onus on the parent to teach their child not to share personal information with their new toy, but that’s a big ask of a kid, said Caltrider.

Fawn collects some personal data, said Fitzpatrick, such as age and birth date. It also collects transcripts of the conversations, but doesn’t share that data with outside parties and doesn’t have an advertising model. “It goes against our beliefs,” said Campbell. 

The company has also built safeguards to prevent Fawn from acting inappropriately, said Fitzpatrick. Based on the child’s age, it will avoid unsuitable topics, perhaps by directing them to ask their parents. The company controls the prompts, making it impossible for kids to “jailbreak” Fawn—that is, convince the AI to act in controversial ways. The toy’s large language model will also check its responses, sometimes in real time and otherwise retroactively, to ensure safety.

The current model is just the beginning of Fawn’s plans. The startup is preparing for a seed-round raise, targeting US$3.5 million to fund expansion into other animal stuffies and entertainment. The next product will be geared toward older kids and helping them develop social skills. They’ve started releasing a series of YouTube videos starring Fawn to help kids fall asleep, and want to create a feature film starring its characters in about five years.

“We are building out a world of Fawn,” said Campbell.