Analysis
Menlo Ventures has invested in AI coding startup Factory as part of its latest round, which values the company at $5 billion, publicly praising Factory's technology, leadership and customer relationships just days after Khosla Ventures co-founder Vinod Khosla publicly criticized the company, according to TechCrunch.
The dispute
The feud started when Factory co-founder and CEO Matan Grinberg removed Chris Degnan from his advisory role, citing concerns that confidential information might have been shared with Cognition, a rival AI-coding-agent startup, after Degnan took a chief revenue officer role there. Degnan disputed the account, saying he had resigned and had declined a competing offer from Grinberg. Khosla then publicly criticized Factory as a struggling second-tier competitor and accused Grinberg of damaging his own reputation -- notably, Khosla Ventures is an investor in both Factory and Cognition, the company at the center of the information-sharing dispute.
“That figure looks modest next to Cognition, which Khosla Ventures also backs: - September 2025 — Cognition valued at $10B.”
Why the cross-bet matters
Factory was founded in San Francisco in 2023 by Matan Grinberg, then a UC Berkeley physics PhD student, and Eno Reyes, a former Hugging Face machine learning engineer, after Grinberg cold-emailed Sequoia Capital's Shaun Maguire. Its flagship product, Droid, is a family of AI coding agents covering code generation, testing, review and incident response. Factory has raised more than $400 million to date across rounds that included Blackstone, Sequoia Capital, Insight Partners and Khosla Ventures:
- September 2025 Series B — $300M valuation.
- April 2026 Series C — $1.5B valuation.
- This round — $5B valuation.
That figure looks modest next to Cognition, which Khosla Ventures also backs:
- September 2025 — Cognition valued at $10B.
- May 2026 — valuation reached $26B, on roughly $492M of annualized revenue.
- Since — raised $2B+ at a $48B valuation led by Andreessen Horowitz, Accel, Founders Fund and General Catalyst, with revenue reportedly nearing $900M.
That's nearly ten times Factory's mark in the same AI-coding-agent category -- a gap wide enough that revenue growth alone may not fully explain it.
What the headline misses
Menlo's public vote of confidence is a marketing move as much as an investment decision -- Menlo is notably not an investor in Cognition, so it has no competing loyalty to manage, which makes its enthusiasm easier to express publicly than it would be for a firm like Khosla that backs both sides. The underlying dispute -- whether confidential information moved between two startups via a shared advisor -- remains unresolved and contested by both parties, and neither Factory nor Cognition has offered independent verification of what, if anything, was actually shared.
Watch whether other Khosla-backed founders in crowded categories start pushing back publicly on cross-portfolio conflicts -- this fight made a usually-private VC tension impossible to ignore.