After Factory's public spat with Khosla, Menlo invests

Menlo Ventures partner Matt Murphy and his team announced Monday in a blog post that the firm has invested in AI coding startup Factory. Menlo declined to comment on how much it invested, but said the deal was part of Factory’s latest funding round, announced last month at a $5 billion valuation. A source familiar with the deal told TechCrunch the investment was significant to Menlo — not a token gesture — and that Menlo would have invested more had there been room on the cap table.

Ordinarily, a new investor joining an extended round wouldn’t necessarily be news; startups often add investors as they extend previous rounds. But last week, Factory co-founder and CEO Matan Grinberg was embroiled in a public dispute after alleging he had fired investor Chris Degnan of firm RPT Partners from his role as board advisor. Grinberg said he feared Degnan may have shared confidential information with Factory’s biggest competitor, Cognition, following Degnan’s move to Cognition as its chief revenue officer. Degnan disputed Grinberg’s account, saying he had resigned and had rebuffed a competing job offer from Grinberg.

Figures across the tech industry came out either to support Degnan and condemn Factory, or the reverse, but none was more notable than Vinod Khosla. Khosla’s firm is an investor in both Factory and Cognition, which didn’t stop him from calling Factory a “struggling second tier competitor” and accusing Grinberg of lying about firing Degnan and impugning his character.

Menlo’s full-throated endorsement of Factory — which praised its founders, its technology and its relationship with customers — is more than a feather in Factory’s cap; it’s a statement that Factory isn’t in the position Khosla implied. Murphy famously bet his firm on Anthropic when it still appeared to be an also-ran to OpenAI, and has been on a hot streak since, landing deals including Lovable and Legora. Some VCs are now calling Factory “the next Anthropic.” Sequoia’s Shaun Maguire, also a Factory backer who publicly supported Grinberg last week, said Menlo is “on a tear.” Menlo, notably, is not an investor in Cognition.

Why it matters

The episode underscores how personal and public VC-vs-VC conflicts have become in the AI coding-tools race, where a rival’s board advisor jumping to a competitor can trigger public accusations that ripple into fundraising decisions.