Imagine children having actual two-way conversations in real time with the digital forms of their favorite Sesame Street characters. Nonprofit educational org Sesame Workshop has teamed up with family entertainment company ToyTalk for a two-year research collaboration to explore such a possibility, with a goal to advance literacy learning and speech recognition among preschoolers.

ToyTalk is using its proprietary PullString Technology to build speech-driven games and stories with interactive characters by combining speech recognition and artificial intelligence. The software is designed to let creators develop characters capable of two-way conversations from writing through recording, animation and audience response.

The San Francisco-based company, founded in 2011 by creative and technical talent from Pixar and SRI, has raised more than US$16 million in funding from Greylock Partners, Charles River Ventures, True Ventures and First Round Capital.