Lemon Slice, a newly founded startup building digital avatar technology, has raised $10.5 million in seed funding from Matrix Partners, Y Combinator, Dropbox CTO Arash Ferdowsi, Twitch CEO Emmett Shear, and The Chainsmokers. The company is developing a next-generation video avatar system powered by a new 20-billion-parameter diffusion model called Lemon Slice-2, designed to bring lifelike, interactive video to AI agents and chatbots. Unlike current AI chatbots that are limited to text, Lemon Slice’s technology generates dynamic, video-based avatars from a single image. These avatars can be customized in real time—changing backgrounds, appearance, and style—and are capable of engaging in natural, interactive conversations. They can serve as customer support agents, tutors for homework, language learning partners, or even mental health companions. The model runs efficiently on a single GPU and can stream video at 20 frames per second, making it suitable for real-time applications. Lemon Slice offers its technology through an API and a simple embeddable widget that developers can integrate into websites with just one line of code. Voice generation is powered by ElevenLabs, ensuring natural-sounding speech. Co-founders Lina Colucci, Sidney Primas, and Andrew Weitz launched the company in 2024 with a mission to overcome the limitations of existing avatar tools, which Colucci describes as “creepy” and “stiff.” She argues that the uncanny valley effect has held back widespread adoption of digital avatars. Lemon Slice’s approach, using a general-purpose video diffusion transformer—similar to models behind OpenAI’s Sora and Google’s Veo3—aims to eliminate that barrier by enabling end-to-end training for both human and non-human characters. The company emphasizes ethical safeguards, including strict guardrails against unauthorized face or voice cloning, and uses large language models for content moderation. While it won’t disclose specific clients, Lemon Slice says its technology is already being used in education, language learning, e-commerce, and corporate training. The startup faces strong competition from players like D-ID, HeyGen, Synthesia, Genies, Soul Machine, Praktika, and AvatarOS. However, investors see Lemon Slice’s technical foundation as a key differentiator. Ilya Sukhar of Matrix Partners highlights the team’s proven ability to ship real-world ML products, not just research prototypes. He believes Lemon Slice’s generalized, scalable approach—focused on data and compute—gives it long-term potential. Jared Friedman of Y Combinator notes that unlike competitors limited to specific avatar types, Lemon Slice’s diffusion model can generate any kind of character, human or otherwise, from a single image. He believes the company is on track to eventually pass the avatar Turing test, thanks to its end-to-end training and photorealistic potential. With only eight employees, Lemon Slice plans to use the new funding to expand its engineering and go-to-market teams, as well as cover the high costs of training its models. The company is positioning itself at the forefront of the next wave of interactive AI, where video and personality come together to create truly engaging digital experiences.