US start-up raises $11.5 million for web-connected teddy bear

The struggles of the Australian toy market have been put into sharp focus by a US-based start-up founded by a former Pixar executive, which has raised $11.5 million for an internet-connected, artificially intelligent teddy bear.

ToyTalk, which is based in San Francisco, was founded by Oren Jacob and Martin Reddy. Oren is the former chief technology officer of Pixar.

Reddy, meanwhile, previously worked at the Artificial Intelligence Center at Sri International, the same organisation that built virtual personal assistant Siri for Apple’s iOS devices.

ToyTalk describes itself as a “family entertainment company” whose mission is to “create entertainment powered by characters and conversation”.

It has created a “smart” teddy bear that is connected to the internet and communicates using artificial intelligence. A video on the company’s website shows a teddy bear talking to a child via an iPad.

Now, ToyTalk has raised $11.5 million in its second round of funding.

The round was led by Charles River Ventures, one of the oldest and most successful early stage venture capital firms in the United States, with approximately $2.1 billion under management.

Founded in 1970, Charles River Ventures takes a value-added, hands-on approach to support its portfolio companies.

In addition to the new funding from CRV, ToyTalk has raised $4.5 million from True Ventures, First Round Capital and Greylock Partners, taking its total capital raised to almost $16 million.

But according to new figures from IBISWorld, the outlook for Australian toy retailers isn’t nearly as rosy.

Australia’s toy and game retailing industry has experienced difficult trading conditions over the five years through 2012-13, with sales declining by an annualised 0.4%, IBISWorld said.

“Despite consumer demand for electronic and interactive toys, trading conditions for industry operators were tough due to mounting industry competition,” it said.

“Sales during this period were also affected by annual fluctuations in real household disposable income, interest rates, consumer sentiment, the relative share of the total Australian population aged 14 years or younger and seasonal trends.”

“The tough trading environment faced by operators over this period also affected industry profit levels, with operators experiencing a downwards pressure on margins.”

IBISWorld predicts sales over 2012-13 to rise by a modest 2.1% to $1.67 billion.

“Once dominated by traditional toy and game merchandise such as dolls, trucks and puzzles, the toy industry has undergone a revolution over the past two decades,” it said.

“Changing consumer preferences and fads in toys led to a decline in the demand for so-called junk toys, such as toy guns and novelty items during the 1980s.”

“By the mid to late 1990s, consumers were demanding more quality and sophisticated toys.”