• A Google X project codenamed Wolverine has spun out into a startup named Iyo.
• It combines AI with other audio features, such as isolating noises in the user's environment.
• The startup has raised $21 million in funding from Alphabet and a handful of other players.

A team inside X, Google's moonshot factory, was working on a revolutionary hearing device, Business Insider reported in 2021. Known then by its codename Wolverine, the project to build a pair of super-powered earbuds gained momentum within the walls of Google's hallowed R&D lab and seemed like it could — just maybe — be the rare idea that turns into a real product.

A few months later, Wolverine's lead, Jason Rugolo, spun the project out of Alphabet and formed a startup named Iyo. Rugolo says the company plans to ship its first product by the end of this year.

Iyo has raised $21 million in funding so far from a handful of investors, including Alphabet, Lockheed Martin, and Horizons Ventures. Rugolo won't comment on whether Google cofounder Sergey Brin, who BI reported was a big fan of the project, has invested any of his own money. He also wouldn't comment on the terms of Alphabet's investment but says nobody from the company sits on Iyo's board.

The company is building two projects in tandem. The flagship device is Iyo One, which is made out of two earbuds, custom-fit to the user, that can enhance and manipulate sounds from the outside world while also letting the user speak to AI "agents" (think about searching for information or doing tasks on the go). And, of course, they can play music. The second device is a high-end pair of headphones aimed at audio professionals.

AI will play a big role here. Rugolo, a former program director in the US government's ARPA-E (Advanced Research Projects Agency - Energy), joined Google X in late 2017, just after a group of Google researchers published the Transformers paper that has been the foundation of large language models built by OpenAI, Google, and others.

"We started poking a lot at those models and how effective they were at conversation," said Rugolo. Within X, employees are told to try and "kill" projects by finding ways they may fail down the road. With Wolverine, many of the original ideas survived, but some did not.

One original idea that survived, which Rugolo spent years trying to solve, is the ability to manipulate and isolate noises in a user's environment. If you're having a conversation in a noisy bar, you could ask Iyo to drown out annoying sounds ("quiet the crying baby") and turn up the volume of your friend's voice. Rugolo says the first iteration of the device will ship with this feature.

Then there are the AI "agents." Similar to the AI agents that other companies like OpenAI and Google are now racing to build, these will perform specific tasks for the user, such as searching for information, running through your grocery list when you're at the store, or acting like a personal DJ by accessing your music apps.

Don't call it a hearable

The "hearables" space is littered with startups that never made it. Iyo's product echoes the Here One earbuds built by Doppler Labs, a startup founded by Noah Kraft in 2013 (and shuttered in 2017). Rugolo told BI he hired Kraft for a stint at Google X to work on what would become Iyo.

Rugolo doesn't like the word "hearables," which he sees as a generation of devices that offer audio with a few extra bells and whistles.

"They're almost just Bluetooth audio peripherals that have one or two additional features to them," said Rugolo. "We sort of came from a completely different direction, which is about human-computer interface."

Now, a stream of new gadgets is jumping on the AI hype and falling flat. Humane's AI Pin has been eviscerated in reviews, and the response to the Rabbit R1, an AI-powered virtual assistant, has been lukewarm.

Then there's the competition already in our ears: Apple's AirPods are a runaway success that cost less than a third of the $599 starting price Iyo is asking for.

Rugolo knows all this and says Iyo is competing with high-end audio devices. Success for the first device will be selling "tens of thousands of units," said Rugolo, "not a hundred million."

Iyo also plans to allow third parties to design apps for its products. Rugolo says he'd like to get big players like Spotify on board to build for it, and he's open to working with Google and Amazon on bringing their AI assistants to it, too. That will first require users.

Rugolo is reluctant to say much about what will be available at launch and what will arrive further down the road. Some of that is due to a fear of overpromising (Rugolo cites the recent reception to the Humane AI Pin) and a hope that developers and companies may want to build apps for the device.

Showing off the device at the TED conference last week, Rugolo said audio devices could get people to spend less time on their phones. Unlike some AI hardware companies hitting the market, he made a point several times in our conversation to insist that Iyo isn't trying to kill the smartphone.

"You'll notice we're not trying to replace them," he says. "We're trying to augment them."

"We were the fastest-growing project at X"

Iyo is trying to tackle several engineering challenges here, so why not stay at Google and keep building Iyo there?

"I think it was much healthier on the outside for a kind of hardware like this, especially a new kind of AI hardware," says Rugolo, who told BI that Wolverine gradually encountered an "immune response" within the company as departments working on similar projects became concerned about how Rugolo's team was encroaching on their territory.

"We were the fastest-growing project at X," said Rugolo. "All of a sudden we start getting a lot of interest and intrigue from other areas."

Iyo isn't the first X project to fly from Alphabet's nest, and it probably won't be the last. BI previously reported that leadership within X had discussed spinning more projects out of the parent company entirely, possibly with Alphabet taking a stake, rather than trying to turn them into Google companies — or killing them entirely.

"I think that X is going to do more like this in the future," said Rugolo. "They're thinking about novel ways to scale projects."

Watch: AI can help audio advertisers lower costs through use of synthetic voices and automated copy writing, says SiriusXM's Lizzie Widhelm

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