Menlo Bets on Factory at $5 Billion as Investor Feud Goes Public

Menlo Ventures has invested in Factory, a startup building AI tools that help write software, as part of a funding round valuing Factory at $5 billion. Menlo announced the deal on October 5, 2026. TechCrunch

The deal was led by Matt Murphy, a partner at Menlo Ventures. Murphy joined the firm in 2015, according to Menlo's account of the investment. Menlo Ventures Menlo described the deal in a blog post. It did not disclose the amount. Menlo declined to comment on the size of its check.

In the week before Menlo's announcement, investor Vinod Khosla publicly called Factory a "struggling second tier competitor." Khosla also accused Factory CEO Matan Grinberg of lying about firing Chris Degnan.

Grinberg said he fired Degnan, an investor at RPT Partners who served as a board adviser to Factory, over concerns that Degnan had shared private information with rival AI coding startup Cognition. Degnan later joined Cognition as chief revenue officer after leaving the adviser role.

Khosla's firm holds investments in both Factory and Cognition, a dual stake listed on what startups call the cap table, the record of owners. Menlo Ventures does not hold an investment in Cognition. Factory was in a dispute with Cognition when Khosla made his comments. Business Insider The comments drew criticism from some founders and tech investors, who said an investor should not publicly attack a company it backs.

The broader context for software buyers is that the financing does not settle whether Factory is the right tool. Menlo is a generalist enterprise investor with deep experience in infrastructure, the basic systems software runs on. It bought into a $5 billion company in a crowded field. Questions about adoption, testing costs, inference economics, the cost of running the AI for each coding task, how the tool fits code review, and enterprise permissioning, the controls over who can see and change code, remain open. The round only shows Menlo reviewed the business and agreed to pay that price.

The broader context for startup investing is that private criticism is normal, but public criticism is rare. Investors often hold strong views in private. They seldom share them publicly while they still own shares, and it is especially unusual when the investor backs two direct rivals. Board access, information rights, and informal adviser networks only work if private context stays private. Once a CEO claims there was a leak to a rival, that trust is hard to rebuild.

In my view, Menlo's investment works as a counter-signal, not only as money. It came days after a well-known existing investor criticized the company in public. A new check led by a senior partner shows conviction. It does not settle what happened with Degnan's departure or the claim about shared information. But it changes Factory's position in hiring, sales talks with large customers, and future fundraising, because the company can point to another large backer that looked closely and still invested.

A practical concern for engineering leaders is access to real code. AI coding startups need production codebases, actual customer software, to train, test, and improve. Companies only share that code if they trust the vendor. A public feud does not change model quality or reliability directly, but it can slow purchasing. A chief information officer asked to pick one coding system for the whole company wants a stable supplier, and public conflict brings extra checks.

Looking ahead with optimism, competition is still helping users. Rival coding systems are improving quickly in agents, autonomous helpers that carry out multi-step tasks, use of outside tools, and repository-level reasoning, understanding of an entire project rather than one file. Several well-funded teams chasing the same problem often build better tools faster than one comfortable leader. If Factory turns this money into lasting business with large customers, the past week will fade as noise. If not, the valuation will face pressure.