AI coding startup Factory's CEO Matan Grinberg publicly accused investor-turned-rival-executive Chris Degnan of defecting to competitor Cognition with board-level secrets, prompting legendary investor Vinod Khosla to call Factory a "struggling second tier competitor" and accuse Grinberg of lying — before Menlo Ventures stepped in with a pointed endorsement of Factory.
The spat erupted when Grinberg said he had fired Degnan, an investor with firm RPT Partners, from his role as Factory board adviser, saying he feared Degnan may have shared confidential information with Factory's biggest competitor, Cognition. The accusation followed Degnan's move to Cognition as its chief revenue officer. Degnan disputed Grinberg's account, saying he had resigned and that he had rebuffed a competing job offer from Grinberg.
Then Khosla weighed in — explosively. Though Khosla Ventures is an investor in both Factory and Cognition, its founder took Cognition's side on X, calling Factory a "struggling second tier competitor" and writing that Grinberg was "more unethical and lying just because you have no decency or sense of proper behavior," adding that it "shows your desperation." Grinberg replied that he had email receipts to verify his version of events, though he did not share them. The pile-on split Silicon Valley: Khosla Ventures partner Keith Rabois defended Factory, writing that "it is unethical per se to even interview at a competitor while attending Board meetings and Board dinners," while Cognition co-founder and CEO Scott Wu politely insisted his company has "no interest in Factory's info" and contended Degnan resigned before any firing.
Then came the rebuttal that mattered. On October 5, Menlo Ventures partner Matt Murphy announced in a blog post that the firm has invested in Factory as part of its latest funding round, announced last month at a $5 billion valuation. Menlo declined to say how much it invested, but a source told TechCrunch the investment was significant — not a token gesture — and that Menlo would have invested more had there been room on the cap table. The post praised Factory's founders, its technology and its customer relationships: a full-throated endorsement that reads as a direct answer to Khosla's characterization.
The episode spotlights one of Silicon Valley's most awkward realities: venture firms increasingly back direct rivals — Cognition, which makes the Devin coding assistant, raised $2 billion at a $48 billion valuation in September, while Factory raised $200 million at $5 billion — but rarely choose sides so openly. With the Justice Department reportedly probing board-level conflicts at major firms, the Factory–Cognition feud has become the industry's test case for where competition ends and betrayal begins.