Factorial Capital, an early-stage venture capital firm pioneering a new model for AI investing, announced the close of its $25 million Fund II. The fund will continue Factorial’s thesis of backing technical founders who code, investing at the angel, pre-seed and seed stages in companies building at the frontier of newly possible technology.

Fund II is $25 million and builds on the success of Factorial Capital’s $10 million “proof of concept” Fund I, which includes ten companies already valued at least five times Factorial Capital’s entry price, including Modal, recently valued at over $1 billion. More established firms, such as Sequoia, a16z, Lux, Lightspeed, Red Point and Felicis, have led later-stage rounds in these Factorial portfolio companies.

Matt Hartman founded Factorial Capital in 2023 after spending nearly a decade at Betaworks writing the very first checks into successful technical founders like Hugging Face, Anchor (acquired by Spotify) and others. He founded Factorial after recognizing that technical founders were often best positioned to recommend new investments and wanted to build a model that creates deep alignment to identify the best new technical startups.

Factorial Capital’s model is inspired by Citadel’s multi-manager hedge fund structure, adapted for early-stage venture capital. Factorial partners with a highly curated set of technical founders, including the founders of Venmo, Giphy and Hugging Face, who identify standout companies within their networks. The firm splits its 20% carry evenly, with 10% going to Factorial GP and 10% to the sourcing partner based on the profit they drive.

“Successful early-stage investing in the AI era requires genuine technical understanding, not just pattern matching on traction or pedigree,” said Matthew Hartman, Founder and General Partner of Factorial Capital. “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.”

“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,” said Iqram Magdon-Ismail, co-founder of Venmo and Factorial Investing Partner. “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.”

Factorial’s portfolio includes Modal (AI hosting infrastructure), Factory AI (AI scoring agents),  Pika (AI video generation), Causal Labs (AI-driven weather prediction for businesses), White Circle (LLM-driven cybersecurity), among others. The firm has become recognized as a strong signal for technical quality in the early-stage AI ecosystem.

Founded in 2023 by Matt Hartman, the first investor in Hugging Face and a nearly decade-long investor at Betaworks, Factorial operates out of New York City and invests in founders who code at the intersection of AI infrastructure, B2B productivity, consumer AI and emerging technology categories.

With Fund II, Factorial will continue to scale its distributed sourcing model, partnering with additional technical founders while maintaining its focus on early-stage companies building at the frontier of what’s newly possible.

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