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.

Interview with Matt Murphy: Strategy and Vision

Menlo Ventures recently spoke with Matt Murphy to understand why AI is driving the firm towards larger and more targeted investments, what they have learned from their relationship with Anthropic, and what opportunities and challenges lie ahead in the AI market.

An Ambitious Investment Strategy

Question: Inflection IV places Menlo in competition with some of the largest late-stage investors in the world. How do you maintain the company's founder-friendly approach while writing much larger checks?

Murphy: AI companies require more capital than previous generations of software companies. They remain private longer, and the winners emerge more quickly. For us, a larger fund allows us to partner with founders from the inception of the company through hypergrowth. Through our venture fund, we invest in early-stage and Series A companies, but the inflection fund gives us the scale and flexibility needed to support the obvious winners as they emerge. That was our strategy 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

Your relationship with Dario Amodei and Anthropic has given Menlo early insight into the direction the AI market is taking. What do you see now that you think other investors might still be missing?

I’m not sure if it’s counterintuitive, but I would say we are moving from Phase 1 to Phase 2 of the market, and we are seeing a completely different set of opportunities and challenges. In Phase 1, developers were simply choosing a model to start building AI. In Phase 2, we see companies 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. One size will not fit all, and we have also been active in this area, including 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. Which parts of the market do you think are most likely to produce strong and sustainable companies: infrastructure, model tools, or industry-specific applications?

We have been active in models, infrastructure, and applications. All show tremendous potential and tailwinds right now. Currently, infrastructure is experiencing a disproportionate increase in opportunities as 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. It is fair to say that the majority of companies are optimizing their market share right now rather than their gross margins, but there are many opportunities for margin improvement over time, and this is a rare moment for territory conquest.

Investment in AI Research Labs

You have supported new AI research labs even before they had a product, including Flapping Airplanes. At this stage, what convinces you that a team has something truly different and can compete with much larger tech companies?

As I mentioned, we believe in a multi-model world, where one size will not fit all needs and use cases. We have 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 we sometimes lead in this category, we prefer to write smaller checks initially. This helps us build broader exposure across the category and talent pool, then double down once we see a company really take off. Frankly, there are too many right now, and all claim to have a differentiated technique or team. Among the 60 model companies, we believe we have invested in more than five of the best and we plan to focus on one or two of them as they progress.