Menlo Ventures Invests in AI Coding Startup Factory Amid Industry Controversy

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 us 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, something like this wouldn’t necessarily be news; startups often extend previous rounds to add new investors. But last week, Factory co-founder and CEO Matan Grinberg was embroiled in a very public airing of dirty laundry when he alleged that 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. The accusation followed Degnan’s move to Cognition as its chief revenue officer.

A who’s who of the tech industry came out of the woodwork either to either support Degnan and condemn Factory, or vice versa, but none was more surprising than Vinod Khosla. Khosla’s firm is an investor in both Factory and Cognition. But that didn’t stop the venerable VC from calling Factory a desperate “struggling second tier competitor,” and accusing Grinberg of lying about firing Degnan and impugning his character. Degnan disputed Grinberg’s story, saying he resigned and that he’d rebuffed a competing job offer from Grinberg.

So Menlo’s full-throated endorsement of Factory, which praised its founders, its tech, and its relationship with its customers, is more than a feather in Factory’s cap. It’s a statement that Factory is not in the state that Khosla implied it was.

Murphy famously bet his firm on Anthropic back when it appeared to be an also-ran to OpenAI and has been on a hot streak ever since, landing deals with Lovable and Legora, for instance. So now some VCs are calling Factory “the next Anthropic.“