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Factorial Capital takes a fresh approach to finding startups with a technical edge
To make smart bets on the current wave of startups, venture capitalists will need a deeper understanding of the tech those startups are building. Matt Hartman believes that investing in software requires knowing how software works. He spent nine years as a partner at Betaworks before starting his new firm, Factorial Capital, where he has developed an alternative approach to identifying the startups with the most promising innovations.
Hartman’s mantra emphasizes the importance of “To invest in software, you need to know how software works.” It is not that other VCs disregard technology. However, Hartman stated that many firms are structured to evaluate consumer brands and businesses that have already achieved product-market fit; technical diligence typically takes place at the very end of the deal-making process and is often limited to consulting CTOs at existing portfolio companies.
This approach falls short in Hartman’s view, especially when it comes to AI and other sectors where technical differentiation is key. “Technology startups want capital from people who understand what they’re building, and most venture firms today were not actually set up to understand technology pre-product market fit,” he said.
To address this issue, Factorial Capital has developed a unique model that relies on a network of technical founders each focusing on sourcing their own deals from their own networks and areas of expertise.
Source: techcrunch.com
