Menlo Ventures Backs Factory at $5 Billion After Khosla Clash
Menlo Ventures backs AI coding startup Factory at a $5 billion valuation, signaling confidence after its public dispute with Vinod Khosla and Chris Degnan.
Summary
On Monday, October 5, 2026, Menlo Ventures partner Matt Murphy and his team announced in a blog post that the firm invested in AI coding startup Factory. The undisclosed investment joined Factory’s latest round, announced the previous month at a $5 billion valuation. The stake was characterized as significant rather than token, and Menlo would have invested more if Factory’s cap table had room.
The endorsement followed CEO and co-founder Matan Grinberg’s public dispute with Chris Degnan, an RPT Partners investor and former Factory board adviser who became Cognition’s chief revenue officer. Grinberg said he fired Degnan over fears that confidential information may have reached Cognition, Factory’s largest competitor. Degnan said he resigned and rejected a competing job offer from Grinberg. Vinod Khosla, whose firm invests in both companies, called Factory a desperate, struggling second tier competitor and accused Grinberg of lying about Degnan’s departure and damaging his reputation.
Menlo praised Factory’s founders, technology and customer relationships, countering Khosla’s characterization. Murphy previously backed Anthropic before its rise against OpenAI and subsequently secured deals with Lovable and Legora, prompting some venture capitalists to call Factory the next Anthropic. Sequoia partner and Factory investor Shaun Maguire, who supported Grinberg on X, celebrated Menlo’s involvement. Menlo does not invest in Cognition.
Positives
- Factory’s latest round values the AI coding startup at $5 billion.
- Menlo’s investment was characterized as significant, and the firm reportedly wanted a larger stake than Factory’s cap table allowed.
- Menlo publicly praised Factory’s founders, technology and customer relationships after the dispute.
- Matt Murphy’s record includes early backing for Anthropic and deals with Lovable and Legora.
- Sequoia partner and Factory investor Shaun Maguire publicly welcomed Menlo’s backing.
Risks & concerns
- Matan Grinberg alleged Chris Degnan may have shared Factory’s confidential information with rival Cognition.
- Chris Degnan disputes being fired, saying he resigned and rejected Grinberg’s competing job offer.
- Vinod Khosla called Factory a desperate, struggling second tier competitor and accused Grinberg of lying.
- Khosla Ventures invests in both Factory and Cognition, intensifying tensions surrounding the rival startups.
- Menlo declined to disclose the size or terms of its Factory investment.