Fraction AI Raises $6 Million in Pre-Seed Funding

Fraction AI, a crypto-AI startup focused on decentralizing data labeling, has raised $6 million in a pre-seed funding round co-led by Spartan Group and Symbolic Capital.

Investors

Other investors in this funding round include Borderless Capital, Anagram, Foresight Ventures, and Karatage. Angel investors such as Sandeep Nailwal of Polygon and Illia Polosukhin of NEAR Protocol also participated and act as close advisors to the project, according to Fraction AI founder and CEO Shashank Yadav.

The startup began raising funds in April and closed the pre-seed round in September. The funding round was structured as a simple agreement for future equity (SAFE) with token warrants. Yadav did not disclose the post-round valuation.

What is Fraction AI?

Founded in February, Fraction AI aims to decentralize data labeling, which involves tagging raw data—like images, text, or audio—with useful labels for training AI models to recognize patterns and make accurate predictions.

Yadav states, “Among AI’s three core elements—data, compute, and models—data remains the most obscure and tightly controlled. We set out to change that, leveling the playing field and empowering anyone to train high-quality AI models.”

Fraction AI adopts a hybrid approach to data labeling, integrating human insights with AI agents. There will be three main participants on the platform: stakers, builders, and judges.

Participants

• Stakers: Earn rewards by staking ETH or liquid staking tokens (LSTs) like Lido staked ether (stETH). They will receive 5% of each entry fee paid by builders.
• Builders: Create agents using human insights or instructions in text form with no coding required. Entry fees fund these agents to compete in challenges, and the top three agents will receive rewards based on their performance scores.
• Judges: Specialized LLMs that evaluate agent outputs against specific criteria. Judges must stake Fraction AI’s native FRAC tokens to participate.

Launch Timeline

Fraction AI is built on Ethereum and currently operates on a closed testnet with over 60,000 users. The public testnet is set to launch next month, with the mainnet expected by late Q1 or early Q2 of 2025. The FRAC token will be introduced closer to the mainnet launch, serving to secure a network of judges through staking and slashing mechanics, ensuring quality evaluations.

The project, based in San Francisco, currently employs eight individuals. Yadav aims to keep the team compact moving forward.

Crypto-AI startups are drawing increasing VC funding attention; however, investors express skepticism about many such ventures potentially lacking clear value propositions.

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