AI Toy Startups Draw Hundreds of Millions in Funding as Investors Hunt for Next Pop Mart
Chinese AI toy companies are attracting unprecedented investment as venture capital firms scramble to identify the next billion-dollar success story in the entertainment sector, with some startups achieving gross margins exceeding 90% on products priced in the tens of thousands of dollars.
Haivivi completed a RMB 200 million ($28 million) Series A funding round on August 25, led by CICC Capital, Sequoia China Seed Fund, Huashan Capital and Joy Capital, with participation from China Merchants Bank International. The round marks the second funding raise for the AI toy startup in 2025 and sets a record for the largest financing amount in the AI toy sector.
The funding frenzy reflects broader investor enthusiasm for AI-enabled toys, a market projected to grow from 42.15 billion in 2025 to 224.75 billion by 2034. According to IT Juzi data, 96 investment institutions have entered the AI toy sector, including top-tier firms like Sequoia, Shunwei Capital, and major internet companies ByteDance and JD.com.
However, industry participants warn that success rates remain extremely low, with some entrepreneurs reporting losses exceeding RMB 10 million ($1.4 million) as companies struggle with high return rates and inventory challenges.
Former Tech Executives Drive Startup Wave
AI toy startups have attracted seasoned executives from China's leading technology companies. Haivivi founder Li Yong previously held senior marketing positions at Smartisan Technology, 360, and served as a partner at Alibaba's Tmall Genie division before launching his company in 2021.
Wei Ta Dong Li, another startup that secured two funding rounds within three months, is led by CEO Yu Yinan, who worked at Baidu and Horizon Robotics. The company has attracted backing from Hillhouse Capital and Today Capital.
Ropet, which completed a multi-million yuan A1 round in September, was founded by He Jiabin, whose career spans Microsoft, Baidu, and ByteDance. Investors have shown particular interest in founders with artificial intelligence and robotics backgrounds from major technology firms.
Premium Products Command High Margins Despite Market Challenges
AI toys span a broad range of products from basic companion devices priced at RMB 300-400 yuan to premium robots costing tens of thousand yuan. Japan′s GROOVEX offer sits LOVOTAI companion robot at approximately RMB 30,000 for the basic model, with high-end versions exceeding RMB 60,000.
Industry data shows AI toys achieve significantly higher profit margins than traditional toys. Basic products like Haivivi's BubblePal maintain gross margins of 50-65%, while mid-range products priced at RMB 1,500-3,000 achieve margins of 70-85%. Premium products can exceed 90% gross margins, surpassing even Pop Mart's 70.3% margin.
Haivivi's BubblePal, launched in July 2024, has sold over 250,000 units at RMB 389 each, generating approximately RMB 100 million ($14 million) in revenue from a single product. The company's second-generation CocoMate series sold out immediately upon release in August.
Market Reality Tempers Investor Optimism
Despite the funding enthusiasm, industry veterans report concerning trends. An AI hardware entrepreneur known as "Old Stone" abandoned his AI toy project earlier in 2025 after observing that only 2-3 companies survived among 40-50 startups he tracked in the sector.
Product pricing has plummeted dramatically, falling from over RMB 100 to as low as RMB 9.9 ($1.40) due to intense competition and inventory pressures. Return rates remain high while user retention stays low, challenging the fundamental business model.
Technical limitations also persist, as AI language models struggle to provide genuine emotional companionship despite marketing claims. Industry analysts suggest successful companies will likely be IP-focused brands similar to Disney rather than pure technology providers, as content creation and brand recognition prove more valuable than technical capabilities alone.
The AI toy market's trajectory mirrors other technology sectors where massive early investment precedes significant consolidation, with only a small number of companies ultimately achieving sustainable success.