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VC Fundraising

Menlo Ventures raises $1.35B to ‘play offense’ on AI investing

Menlo Ventures’ early AI bets helped the firm raise $1.35 billion for early-stage and early-growth funds.

At a time when many VC firms are finding it more difficult to raise capital, Menlo Ventures’ early start on backing generative AI companies has helped it close on $1.35 billion in fresh funding.

Menlo partner Matt Murphy said that about 80% of the new capital will go to backing AI companies, an area where Menlo already has a stronghold. The firm invested in vector database developer Pinecone at the seed stage in 2021 before generative AI took the world by storm and the company’s offering became popular with AI developers. Pinecone closed a $100 million Series B at a $750 million valuation in April.

Other notable AI companies in Menlo’s portfolio include Anthropic, Typeface and data-fixing startup Cleanlab.

About $550 million of the new capital is allocated to flagship early-stage fund Menlo XVI, which backs startups with zero to $3 million in annualized recurring revenue. The remaining $800 million is earmarked for Inflection III, an early-growth fund, which invests in companies that have reached $3 million to $10 million in ARR, Murphy said.

Both funds are larger than their predecessor vehicles. The 47-year-old firm raised $500 million for its previous flagship fund in 2020. The firm closed on about $500 million for its second Inflection fund, according to Murphy.

While Menlo is focused on all aspects of AI transformation, the firm is especially interested in backing infrastructure companies that form “the building blocks that help people build AI applications,” Murphy said.

“Given what’s going on in AI, we really want to be able to play offense” using fresh capital, Murphy said, but he also added that Menlo is now very discerning about the companies it backs and plans to invest the funds over three years or longer.

Featured image by Skynesher/Getty Images

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