Factorial Capital has closed its $25 million Fund II, reinforcing its bet on technical founders building at the cutting edge of artificial intelligence. The New York based early stage firm will continue writing angel, pre seed and seed checks into startups created by founders who code and operate close to what is newly possible in technology. With the new fund, Factorial aims to institutionalize a model that treats proven engineers and product builders as core investing partners rather than occasional scouts.
Scaling a Thesis Around Technical Founders
Fund II more than doubles Factorial Capital's debut $10 million vehicle, which Hartman has described as a proof of concept for the strategy. That first fund already includes ten portfolio companies valued at least five times Factorial’s entry price, among them Modal, which has recently crossed the billion dollar valuation threshold. Later stage rounds in these companies have been led by established firms such as Sequoia, Andreessen Horowitz, Lux, Lightspeed, Redpoint and Felicis, signaling strong external validation of Factorial’s early selection.
From Betaworks Experience to a New VC Model
Founder and general partner Matt Hartman launched Factorial Capital in 2023 after nearly a decade as an investor at Betaworks. There, he wrote some of the earliest checks into technical founders behind companies like Hugging Face and Anchor, the latter later acquired by Spotify. That experience convinced him that deeply technical builders are often best placed to recognize the next generation of frontier startups, which led him to design a firm where those founders have real economic and decision making weight.
A Distributed Sourcing Model Built With Technical Partners
Factorial’s structure borrows from the multi manager model popularized in hedge funds such as Citadel, but adapts it to early stage venture investing. The firm works with a tightly selected group of technical founders, including the creators of Venmo, Giphy and Hugging Face, who surface standout startups from within their own networks. Factorial splits its 20 percent carried interest evenly, with half going to the general partnership and the other half allocated to the sourcing partner in proportion to the profits their introductions generate, creating clear alignment around outcomes.
Aligning Incentives for Operators and Investors
Hartman argues that early stage AI investing now demands genuine technical fluency rather than pattern matching on pedigree or headline traction. In his view, traditional venture firms are becoming more institutional at the same time that the underlying technology is evolving faster, which can leave large funds slow and poorly equipped to evaluate bleeding edge infrastructure or models. By contrast, Factorial’s investing partners remain full time builders who can spot promising teams long before they appear in standard deal flow, while the firm supplies institutional capital, investment rigor and ongoing support to help those companies raise subsequent rounds.
Portfolio Momentum and Areas of Focus
The firm’s portfolio spans companies like Modal, which provides AI hosting infrastructure, Factory AI, which builds AI powered scoring agents, Pika, which focuses on AI video generation, Causal Labs, which applies AI to business weather prediction, and White Circle, which brings large language model driven capabilities to cybersecurity. Within Fund II, Factorial plans to keep targeting founders who code at the intersection of AI infrastructure, business productivity software, consumer AI applications and emerging technical categories that are only now becoming possible. Operating from New York City, the team continues to position a Factorial term sheet as a strong signal of technical quality inside the early stage AI ecosystem.
With the close of its $25 million Fund II, Factorial Capital is doubling down on a thesis that puts technical founders at the center of the venture capital model. The firm intends to broaden its distributed sourcing network by partnering with additional engineers and product builders while preserving a concentrated focus on frontier AI and infrastructure startups at the earliest stages. If its second fund builds on the trajectory of its first, Factorial is likely to play an increasingly influential role in how the next wave of AI native companies is discovered, funded and brought to market.