Most VCs chase traction stats, but the tech moves too fast for that. General partners without deep engineering chops struggle to spot true breakthroughs, while the best builders would rather ship products than scout deals
New York–based venture firm Factorial Capital fixes this with a sourcing setup borrowed from Citadel’s multi-manager playbook. They team up with battle-tested technical founders from Venmo, Giphy, and Hugging Face, who flag the hottest startups in their circles. Profits split evenly (10% to the firm, 10% to the partner who brought the deal), keeping everyone hungry for exclusive flow.
This new fund doubles down on Factorial’s $10 million Fund I, which they call a “proof of concept.” Ten companies from that vintage are already up at least 5x, like Modal, with Sequoia, a16z, Lux, Lightspeed, Redpoint, and Felicis piling in on follow-ons.
With Fund II, Factorial will expand its sourcing model, partnering with more technical founders and focusing on early-stage companies exploring new possibilities.
A model built around technical founders
Matt Hartman launched Factorial in 2023 after nearly ten years at Betaworks, where he cut the first checks for winners like Hugging Face and Anchor (later acquired by Spotify). He created Factorial after noticing that technical founders often had the best insight into emerging technology trends and were well-positioned to spot promising early-stage teams.
“Successful early-stage investing in the AI era requires genuine technical understanding, not just pattern matching on traction or pedigree. Venture firms are growing and institutionalising 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. Those with finance backgrounds are poorly suited to evaluate the technology,” said Matthew Hartman, Founder and General Partner of Factorial Capital.
Factorial’s whole deal is betting on builders who code, chasing “what’s newly possible” instead of TAM spreadsheets. They picture a VC world where hands-on creators shape the earliest calls, leading to tighter alignment in AI’s breakneck pace.
Hartman added, “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.”
When we asked about diversity strategy, Hartman told TFN, “Our distributed sourcing model helps us meet founders outside of our own insulated networks, and we’ve found that focusing deeply on the technology helps to centre the conversation and evaluation on the technology itself versus being focused on a specific pedigree or profile”
What’s next?
With Fund II, Factorial plans to expand its distributed sourcing model and bring more technical founders into its network, while continuing to focus on infrastructure, B2B AI tools, consumer AI, and emerging technologies.
