Factorial Capital has closed Fund II at $25 million as the New York-based early-stage venture firm expands its model of backing technical founders building at the edge of what emerging AI technologies now make possible.
The new vehicle follows the firm’s initial $10 million Fund I, which served as a proof of concept for its distributed sourcing approach and has already produced a portfolio of ten companies valued at least five times Factorial Capital’s entry price.
Among them is Modal, which recently surpassed a $1 billion valuation and has since drawn participation from established venture firms including Sequoia, a16z, Lux, Lightspeed, Redpoint, and Felicis.
The firm was founded in 2023 by Matt Hartman, who previously spent nearly a decade at Betaworks as an early investor in companies such as Hugging Face and Anchor, which Spotify later acquired. Hartman founded Factorial Capital after observing that the most technically skilled founders often had unique visibility into emerging technologies and were well-positioned to identify promising companies well before they attracted traditional venture capital. His goal was to structure a model that fosters closer alignment with those founders and leverages their technical expertise at the earliest stages of company formation.
Factorial Capital’s approach draws inspiration from Citadel’s multi-manager hedge fund architecture, adapted for early-stage venture investing. The firm partners with a selective group of highly technical founders from companies such as Venmo, Giphy, and Hugging Face, who source top-tier startups from within their networks. Factorial splits its 20 percent carried interest evenly, allocating half to the general partnership and half to the sourcing partner responsible for identifying and supporting the successful investment.
The firm’s portfolio spans AI infrastructure, video generation, AI-driven weather prediction, cybersecurity, and next-generation B2B and consumer AI applications. Its investments include Modal, Factory AI, Pika, Causal Labs, and White Circle, among others. The firm continues to gain recognition as a strong signal of technical quality for early-stage AI startups.
With Fund II, Factorial Capital plans to expand its distributed sourcing model by partnering with additional technical founders while maintaining its focus on angel, pre-seed, and seed stage companies. The firm will continue to invest in teams with deep technical insight, building at the frontier of AI, infrastructure, and emerging categories that are becoming newly possible.
KEY QUOTES:
“Successful early-stage investing in the AI era requires genuine technical understanding, not just pattern matching on traction or pedigree. Venture firms are growing institutionalizing at the same time that technology is moving faster than ever — this creates a mismatch at the earliest stage, where experienced VCs can’t write big enough checks and those with finance backgrounds are poorly suited to evaluate the technology. At the same time, many of the best technologists want to build, not raise capital and run funds. Factorial’s network of exceptional technologists solves both problems by partnering with proven technical founders who bring deep expertise and proprietary dealflow. We don’t care about markets. We care about technical teams with insight into what’s newly possible, backing them early and with conviction.”
Matthew Hartman, Founder And General Partner, Factorial Capital
“Factorial’s model allows me to focus on my strengths: identifying exceptional technical founders in my network and supporting them on product strategy, while partnering with Matt on investment decisions and helping the founders raise their next round of capital. having the partnership of an institutional fund: Matt’s partnership on investment decisions and ability Matt’s investment experience and the benefits of an institutional capital behind me. I see companies being built by people in my network before they’re on anyone’s radar and Factorial gives me the capital and infrastructure to act on that conviction. The economics are structured like a real partnership, and Matt and the team bring the venture expertise to help these founders succeed beyond the initial check.”
Iqram Magdon-Ismail, Co-Founder Of Venmo And Factorial Investing Partner
