Menlo Ventures Backs AI Startup Factory Days After Khosla Called It a “Struggling Second Tier Competitor

Menlo Ventures announced Monday, October 6, 2026, that it has invested in AI coding startup Factory, just days after prominent venture capitalist Vinod Khosla publicly criticized the company as a desperate “struggling second tier competitor.”

Menlo partner Matt Murphy and his team disclosed the investment in a blog post that praised Factory’s founders, technology, and customer relationships. The firm declined to specify the amount 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 the firm would have invested more had there been room on the cap table.

The investment follows a public dispute involving Factory co-founder and CEO Matan Grinberg, who alleged last week that he had fired investor Chris Degnan of RPT Partners from his board advisor role, citing concerns that Degnan may have shared confidential information with Factory’s biggest competitor, Cognition — where Degnan subsequently joined as chief revenue officer. Degnan disputed the account, saying he resigned and had turned down a competing job offer from Grinberg.

Khosla, whose firm holds stakes in both Factory and Cognition, weighed in by calling Grinberg’s characterization a lie and accusing him of impugning Degnan’s character. The dispute drew responses from across the tech industry, including Sequoia’s Shaun Maguire, a Factory backer who publicly supported Grinberg and has since welcomed Menlo’s involvement, saying the firm is “on a tear.”

Menlo’s endorsement carries weight given Murphy’s track record — he previously invested in Anthropic when it appeared to be trailing OpenAI, and has since closed deals with Lovable and Legora. Some investors are now drawing comparisons between Factory and Anthropic. Notably, Menlo does not hold a stake in Cognition.