Menlo Backs Factory at $5 Billion After Khosla Calls It Second Tier

Menlo Ventures said Monday, Oct. 5, that it invested in Factory, the AI coding startup valued at $5 billion, five days after Khosla Ventures founder Vinod Khosla called the company a "struggling second tier competitor". Menlo did not disclose the amount. It joins a round that Factory announced on Sept. 15 as a $200 million raise, which makes this an extension of an existing round, not a new one.

Khosla Ventures is a co-lead of that round. It is also an investor in Cognition, the competitor at the centre of the dispute, and has been since early 2025, according to TechCrunch.

What the Sept. 15 round contained

Factory said Blackstone, Khosla Ventures and Sequoia Capital led the $200 million, with Insight Partners, Evantic Capital, Sound Ventures, NEA, Mantis VC and Clearlake also in. Total funding is above $400 million. Its named customers include Nvidia, Blackstone, Royal Bank of Canada, Palo Alto Networks, Adobe and T-Mobile, and it says its product is used by "hundreds of thousands of developers". Tech Startups reported the round more than tripled the previous valuation.

Blackstone appears twice on that page, as a co-lead investor and as a customer. The announcement does not give revenue, so there is no multiple to compute for Factory. For scale, Cognition was valued at $48 billion after a $2 billion raise earlier in September, which is 9.6 times Factory's $5 billion.

1. Cognition48 $ billion
2. Factory5 $ billion

Source: TechCrunch, Sept. 30, 2026, citing Cognition's $2 billion raise and Factory's $200 million raise

How the dispute started

The fight began on Sept. 30 when Factory co-founder and Chief Executive Matan Grinberg accused Chris Degnan of passing information to Cognition. Degnan is a partner at RPT Partners, an investor in Factory for five months, and a go-to-market adviser at Iconiq Capital. He spent 11 years as chief revenue officer of Snowflake and has since become Cognition's chief revenue officer.

Grinberg wrote: "For weeks, while he sat in our board meetings and advised our leadership team, he was also confiding with executives of our largest competitor." Degnan replied that he was not fired: "You did not terminate me. I resigned from my advisor position on Monday and told you I was going to Cognition." He denied sharing confidential information and said his last board meeting came weeks before any Cognition talks. Cognition chief executive Scott Wu said his company has "no interest in Factory's info".

Khosla then sided with Cognition and accused Grinberg of lying, per TechCrunch. His partner Keith Rabois wrote that it is "unethical per se to even interview at a competitor while attending Board meetings", which is a rule about board conduct, not about whether Degnan leaked anything.

Why Menlo's post matters, and what it leaves out

Menlo's blog post, written by managing partner Matt Murphy with Derek Xiao, Sam Borja and Sabrina Lu, does not mention Khosla. It says the code generation market grew from $550 million to $4 billion to more than $30 billion in two years, and quotes Factory as shipping features "in days rather than quarters". TechCrunch reports Menlo said it would have invested more if the cap table allowed.

The investor lineup is the story. Sequoia, a co-lead, has a partner on the other side: Shaun Maguire posted that "we're sitting on a nuclear weapon to end them" about Cognition. That makes two of Factory's three leads publicly aligned with different companies in the same fight, and a fourth firm adding money days later.

Firm	Position in Factory	Position in the dispute
Khosla Ventures	Co-lead of $200 million	Founder criticised Factory; also backs Cognition
Sequoia Capital	Co-lead	Partner Shaun Maguire posted in Factory's favour
Menlo Ventures	Extension, amount undisclosed	Published a blog post praising the company

A co-lead calling a company second tier days after closing the round is unusual. The terms of Khosla's allocation have not been disclosed, and whether the extension was priced at $5 billion is only reported by TechCrunch. The next funding announcement from Factory or Cognition will show whether either valuation moves. Elsewhere in private markets, see XDOF's reported $1.2 billion talks and AMD's $8.2 billion World Labs deal.