Exclusive: Hugging Face CEO teams up with newly launched venture firm Factorial to invest in AI startups

Clément Delangue, cofounder and CEO of AI platform Hugging Face, is teaming up with early-stage investor Matthew Hartman, previously a partner at Betaworks Ventures, to boost investment in the broader open-source AI ecosystem.



Hartman’s new venture firm, dubbed Factorial Capital, will partner with angel operators and write checks of around $100,000, on average, with an initial focus on AI. Hartman and Delangue, Factorial’s inaugural partner, have already backed two startups: flower.dev, which builds privacy-friendly systems for AI training; and Nomic AI’s GPT4All, a library for open-source chatbots.



Factorial has raised $10 million for its debut fund, Hartman says. The firm’s expert partners, including Delangue, will manage their own portfolios and evenly split the economics with Factorial. In a sense, Factorial offers a formalized outlet for the founders’ existing angel-investing activities.



“Clém comes across incredibly talented founders,” Hartman says.



As for Delangue, he says his investment criteria are relatively simple: “Can this be useful, impactful, helpful for the community?”



If that sounds rudimentary, consider the momentum behind that community. Last month, a Hugging Face meetup in San Francisco attracted over 5,000 AI developers, who embraced the #WoodstockAI hashtag as an indication of the gathering’s significance.



Delangue is also hopeful that Factorial’s checks will better position open-source startups to keep pace with their closed-book rivals. “Capital is important, especially because a lot of startups in AI right now need compute and need infrastructure that can be costly,” he says. Down the road, he can imagine doing “something even bigger.”



Other leading companies in the AI space are similarly looking to win over the freshest crop of upstarts. OpenAI and Microsoft, for example, operate a $100 million fund dedicated to investing in startups with “big ideas” about AI. According to Pitchbook, over $10 billion worth of deals involving generative AI startups were announced in the first quarter of this year.



Hartman and Delangue met nearly seven years ago, when New York-based Betaworks became Hugging Face’s first investor. At the time, the company was focused on building a lighthearted chatbot that could banter with users about pop culture and entertainment. When the two started talking about Factorial, their new collaboration came together in a matter of weeks.



“Our point of view is that in the earliest stages of a company’s life, successful founders both have a superior ability to identify the most interesting new technologies and a strong ability to help those companies and give them actionable advice,” says Hartman. “The key will be Clement’s judgment around AI, partnered with the experience I have around investing to back companies that are deep in the category.”



Early-stage venture investing is highly competitive these days, and all the more so in AI, which has captured the business world’s attention since the launch of OpenAI’s viral chatbot, ChatGPT, last fall. Hartman sees Factorial’s unusual, expert-based structure as a way to avoid the bigger-is-better dynamics that have shaped many venture funds in recent years. It’s also a source of deal flow.



“Building a brand for a new fund is much more noisy today than it was a decade ago,” he says. “I think that requires a different strategy.”