Menlo Ventures Publicly Backs Factory’s $5B Round After Vinod Khosla Calls It a “Struggling Second Tier Competitor”

The Factory Menlo Ventures Khosla spat escalated this week as Menlo Ventures publicly announced it has invested in Factory, the AI coding startup at the center of a bruising public feud involving billionaire investor Vinod Khosla. Menlo partner Matt Murphy revealed the investment in a blog post on October 5, days after Khosla — an investor in both Factory and its rival Cognition — attacked the company on X as a “struggling second tier competitor,” according to TechCrunch.

Menlo said the deal is part of Factory’s latest funding round, which was announced last month at a $5 billion valuation. The firm declined to disclose how much it invested, but TechCrunch reported, citing a source familiar with the deal, that the investment was “significant” — not a token gesture — and that Menlo would have invested more had there been room on the cap table. Factory separately confirmed the investment in a Business Wire announcement, with co-founder and CEO Matan Grinberg calling Murphy “one of the legends of Silicon Valley.”

How the Factory Menlo Ventures Khosla Spat Began

The dispute started last week when Grinberg publicly alleged he had fired investor Chris Degnan of RPT Partners from his role as a Factory board advisor. Grinberg said he feared Degnan may have shared confidential information with Factory’s biggest competitor, Cognition, after Degnan joined Cognition as chief revenue officer. Degnan disputed that account, saying he had resigned and had rebuffed a competing job offer from Grinberg, TechCrunch reported.

Cognition co-founder and CEO Scott Wu also weighed in, insisting the company had “no interest in Factory’s info” and would never ask its team to collect information about a competitor “under-the-table,” according to citybiz. The facts of the Degnan episode remain disputed, and neither side has made its evidence public — Grinberg said he has email receipts to verify his version of events but did not share them.

Khosla’s Post and the Industry Backlash

Khosla then inserted himself into the fight in a post on X dated September 30: “You are a struggling second tier competitor that is more unethical and lying just because you have no decency or sense of proper behavior and shows your desperation. Straight out lying about if Chris being fired I thought would be below even you.”

The post, made by an investor in both companies, drew swift criticism from founders and other investors. Anduril co-founder Palmer Luckey questioned why Khosla would have invested in Factory at a multibillion-dollar valuation only weeks earlier if he believed so little in the company, citybiz reported. Amplitude CEO Spenser Skates described the episode as “another great reason not to raise from Vinod,” while Nathan Lands, an angel investor in Factory, said Khosla had crossed a line.

Notably, even within Khosla Ventures the lines were split: a firm partner publicly defended Factory’s position on the ethics of interviewing at a competitor while holding board-level access, per the TechCrunch account of the dispute. Cognition, which develops the coding assistant Devin, raised $2 billion at a $48 billion valuation in September, while Factory raised $200 million at a $5 billion valuation, according to citybiz.

Menlo’s Counterstatement in the Factory Menlo Ventures Khosla Spat

Menlo’s full-throated endorsement of Factory — praising its founders, its technology, and its relationship with customers — reads as a direct statement that the company is not in the state Khosla implied, TechCrunch observed. It is a meaningful signal because Murphy famously bet his firm on Anthropic when it appeared to be an also-ran to OpenAI, a bet that paid off handsomely. Menlo has since been on a hot streak, landing deals with Lovable and Legora, and TechCrunch reported that some VCs are now calling Factory “the next Anthropic” — a label that remains unconfirmed beyond that single report. (Readers following the AI mega-rounds may find our Anthropic IPO coverage useful context on how those valuations are playing out.)

It is also significant that Menlo is not an investor in Cognition — the endorsement is unambiguous. And Murphy is not the only prominent backer to stand by Grinberg: TechCrunch reported that Sequoia partner Shaun Maguire, a Factory investor who came out on X in support of Grinberg last week, “appears thrilled” with Menlo’s endorsement. That support, however, is only confirmed through TechCrunch’s report and should be treated as unconfirmed unless independently verified.

What the Factory Menlo Ventures Khosla Spat Says About AI Investing

Beyond the personalities, the episode highlights an awkward reality of the AI boom: major firms increasingly back direct rivals but rarely pick sides so openly, as citybiz noted. Khosla Ventures, like Sequoia and Founders Fund, holds stakes in competing AI companies — a strategy that has become common in frontier AI but usually avoids public confrontation. As the broader AI industry debate over competition and responsibility continues, this feud shows how quickly those tensions can turn personal.

FAQ

Why did Menlo Ventures invest in Factory?

Menlo partner Matt Murphy announced the investment on October 5 as part of Factory’s $5 billion round, praising the company’s founders, technology, and customer relationships. TechCrunch interpreted the endorsement as a public counter to Vinod Khosla’s claim that Factory is a “struggling second tier competitor.”

What was the original dispute about?

Factory CEO Matan Grinberg alleged he fired RPT Partners investor Chris Degnan as a board advisor, fearing Degnan might share confidential information with competitor Cognition after Degnan joined Cognition as chief revenue officer. Degnan disputed that account, saying he had resigned, and Cognition’s CEO said the company had “no interest in Factory’s info.”

What did Vinod Khosla say about Factory?

In a September 30 post on X, Khosla — whose firm has invested in both Factory and rival Cognition — accused Factory CEO Matan Grinberg of lying about firing investor Chris Degnan, called Factory a “struggling second tier competitor,” and said Grinberg showed “no decency or sense of proper behavior.” The post drew criticism from other founders and investors.

How big is Factory’s funding round?

Factory announced the round last month at a $5 billion valuation, with citybiz reporting it raised $200 million. Menlo Ventures declined to disclose the size of its own investment, but TechCrunch cited a source describing it as significant. For comparison, rival Cognition raised $2 billion at a $48 billion valuation in September, per citybiz.

Sources: TechCrunch (Oct 5, 2026); Business Wire press release (Oct 5, 2026); citybiz (Oct 2026); McKinsey interview with Matan Grinberg