Menlo Ventures Invests $3 Billion to Dominate AI

Menlo Ventures and Its Massive Commitment to AI

Last June, Menlo Ventures announced an impressive fundraising round of $3 billion, spread across two distinct funds. This marks the largest fundraising effort in the company's 50-year history. This initiative represents a significant turning point for Menlo Ventures, which is now positioning itself as a major player in the field of artificial intelligence.

The first fund, Menlo Ventures XVII, is primarily aimed at early-stage and Series A companies. The second, Menlo Inflection IV, focuses on growth funding for startups from Series B and beyond. These funds aim to support companies across the entire spectrum of AI, ranging from foundational models and infrastructure to applications for enterprises, healthcare, and consumers.

This new capital injection provides Menlo Ventures with increased flexibility to support companies from their inception through later funding rounds, which may require investments of several hundred million dollars. It also illustrates the growing importance of AI for Menlo Ventures, a firm historically recognized for its investments in iconic companies such as Uber, Roku, and Siri.

Menlo's Strategic Investments in AI

Among the AI companies in which Menlo Ventures has invested, Anthropic stands out as one of the most notable. Menlo began investing in this AI model development company in 2023 and has continued to increase its commitment during successive funding rounds. Other notable investments by Menlo in the AI space include:

• Lovable, an application creation platform
• Suno, a startup specializing in music generation
• OpenRouter, an AI model marketplace
• Wispr, a voice productivity company
• Fireworks AI and Modal, AI infrastructure companies
• Skild AI, a robotics startup
• Goodfire, an AI research company

Matt Murphy, a key partner at Menlo since 2015, has played a central role in developing this strategy. He focuses on AI infrastructure, developer tools, and AI-native software. Murphy has led Menlo's investments in companies such as Anthropic, Lovable, OpenRouter, as well as in the AI-powered software delivery platform Harness, the code security startup Semgrep, and the legaltech startup Legora.

Before joining Menlo, Murphy spent 15 years at Kleiner Perkins as a general partner. He was an observer at Google from the company's initial investment until its IPO, contributed to launching the $200 million iFund with Apple, and worked on investments such as DocuSign, AppDynamics, Upstart, and Shazam. Earlier in his career, he held operational roles at Netboost and Sun Microsystems.

Matt Murphy: Strategy and Vision

Matt Murphy recently explained why AI is driving the firm towards larger and more targeted investments, what Menlo has learned from its relationship with Anthropic, and what opportunities and challenges lie ahead in the AI market.

An Ambitious Investment Strategy

With Inflection IV, Menlo now competes with some of the largest late-stage investors in the world, which raises the question of how it stays close to founders while writing much larger checks.

For Matt Murphy, AI companies require more capital than previous generations of software companies. They remain private longer, and the winners emerge more quickly. A larger fund, he said, allows Menlo to partner with founders "from the inception of the company through hypergrowth." The venture fund invests in early-stage and Series A companies, while the inflection fund gives the firm the scale and flexibility needed to support the obvious winners as they emerge. That was the strategy followed with Anthropic, Suno, Wispr, OpenRouter, and Lovable.

Increased Investment Concentration

Menlo Ventures has demonstrated its willingness to strongly support the companies it believes in, as evidenced by its significant investment in Anthropic. This level of concentration is reserved for a small number of exceptional AI companies. During the initial investment in Anthropic's Series C round, Menlo was able to get closer to the team and assess their execution and vision. By leading the Series D round, Menlo made its largest investment to date. This approach is now integrated into their strategy, as the late-stage AI market is experiencing rapid growth and requires significant capital to support this expansion. Companies that stand out are achieving high private valuations due to their exceptional growth rates.

Opportunities and Challenges in the AI Market

Menlo's relationship with Dario Amodei and Anthropic has given it early insight into the direction the AI market is taking.

As for what other investors might still be missing today, Matt Murphy said he was not sure whether his view was counterintuitive, but he believes the market is moving "from Phase 1 to Phase 2," with a completely different set of opportunities and challenges. In Phase 1, developers were simply choosing a model to start building AI. In Phase 2, companies are scaling using AI and looking to optimize their spending and infrastructure choices. A large number of companies are benefiting from tailwinds alongside companies like OpenRouter, Fireworks, Modal. "It will be a multi-model world," he said: one size will not fit all. Menlo has also been active in this area, including with more vertical models such as Chai Discovery for life sciences and Skild for robotics.

Bottlenecks in the AI Ecosystem

The rapid development of AI has highlighted several bottlenecks in the ecosystem. One of the main challenges is how to quickly and safely put newly developed code into production. This has created a tailwind for companies specializing in software delivery, such as Harness and Semgrep. Additionally, the rise of custom models based on open-source models has created demands for computing resources, training, and testing environments. Companies like Modal and Fireworks are addressing these needs by aggregating computing capabilities from various providers, including Nebius and CoreWeave.

Valuation and Market Opportunities

Valuations in the AI market have significantly increased. The open question is which parts of the market are most likely to produce strong and sustainable companies: infrastructure, model tools, or industry-specific applications.

Matt Murphy noted that Menlo has been active in models, infrastructure, and applications, and that all show tremendous potential and tailwinds right now. In his view, infrastructure is currently experiencing a disproportionate increase in opportunities as enterprises and AI-native companies adopt a multi-model approach and strive to meet the infrastructure and computing management needs it demands. Coding tools are now commonplace and are putting tremendous pressure on organizational processes to deliver software faster and more efficiently, creating tailwinds for companies like Harness. The investor considers it "fair to say that the majority of companies are optimizing their market share right now rather than their gross margins," but he sees many opportunities for margin improvement over time. He described the period as "a rare moment for territory conquest."

Investment in AI Research Labs

Menlo has supported new AI research labs even before they had a product, including Flapping Airplanes. At this stage, the difficulty is knowing whether a team has something truly different and can compete with much larger tech companies.

Matt Murphy returned to his belief in a multi-model world, where one size will not fit all needs and use cases. Menlo has an explicit strategy to gain early exposure to some of the most compelling AI research teams with distinctive techniques or capabilities, even at a very early stage. Many of these companies are raising rounds of over $100 million, and while Menlo sometimes leads rounds in this category, it prefers to write smaller checks initially. This helps it build broader exposure across the category and talent pool, then double down once a company really takes off. "Frankly, there are too many right now, and all claim to have a differentiated technique or team," he acknowledged. Among the 60 model companies, Menlo believes it has invested in more than five of the best and plans to focus on one or two of them as they progress.