20VC: Leading Anthropic's First Ever Round | Will Open Source Threaten Anthropic's Business | Do Margins Matter in a World of AI | Why Triple, Triple, Double, Double is Not Good Enough Today | Why Series A is Hard Today with Matt Murphy @ Menlo
Summary
This episode focuses on Menlo Ventures' decision to back Anthropic and what that says about investing in frontier AI today. Matt Murphy explains why the firm was willing to break its usual rules on fund size, valuation, ownership, and even use an SPV to participate in the deal. The conversation also explores how venture capital is changing, including why ownership matters less, why Series A is harder to underwrite, and why SPVs and secondary activity are becoming more common. On the AI side, Murphy argues that open source will not fully commoditize frontier model companies because top-tier performance still drives customer retention and revenue. The discussion also covers broader industry shifts such as margins in AI, the move toward full-stack companies, and why traditional growth benchmarks like triple-triple-double-double may no longer reflect venture-scale outcomes.
Key Takeaways
- 1Menlo broke its normal investing rules to back Anthropic because it saw the opportunity as too strategically important to miss.
- 2In today’s venture market, ownership matters less than getting into the biggest outliers early enough.
- 3SPVs are becoming a useful tool for increasing exposure to winners, but they can also create market friction.
- 4Open source is unlikely to eliminate the advantage of frontier model companies like Anthropic anytime soon.
- 5Series A has become one of the hardest stages to invest in because the market now moves too fast for traditional signals.
- 6The AI market is pushing companies toward full-stack strategies and changing what growth benchmarks mean.
Notable Quotes
""The first check was a little over 10... But then the next round is when we did the 500 plus SPV.""
""I think it's pretty rare as you know to find companies these days that don't end up raising a lot of capital that way outside of the frontier companies and look anywhere in the AI stack, even the application companies.""
""I think the foundation models, let's say, specifically anthropic, have such special models, performant intelligent models. This can be hard for somebody to just kind of say, I've used open source with my data.""
""I think the biggest thing that's changed... is people used to have their swim lanes. And now more and more everyone's full stack.""
""we've never done an SPV before we really going to go down this path.""
""if I do like a little bit of a back of an app can on anthropic and distributions it'll just show you around $10 billion in carry it's quite a lot of monopoly money math.""
""I think richer investors make better investors because you do not worry about downside mitigation but you focus on upside optimization.""
""you can't expect all these companies to have great acquires and there's no way in hell that you know we're going to have 60 independent model companies in addition to all the open source and everything.""
Episode questions
Why did Menlo break its usual investing rules to back Anthropic?
Murphy says the combination of Dario’s technical leadership, benchmark performance, and the scale of the foundation-model market outweighed normal constraints around valuation and fund sizing. The firm believed being in the market mattered more than rigid adherence to traditional venture rules.
Why does Murphy think ownership matters less today?
Because venture outcomes are increasingly driven by a handful of massive outliers, not by lots of middling outcomes. He argues it’s better to own a smaller piece of a truly exceptional company than a larger piece of a company that exits at a much smaller scale.
How does Menlo use SPVs without letting them distort the firm’s strategy?
The firm uses SPVs when the main fund hits allocation limits but it still wants to support a winner or compete in a later round. Murphy says the key is keeping fund size disciplined and using SPVs as an extension of strategy, not a replacement for it.
What makes Series A so difficult right now?
The gap between seed and Series A has compressed, so the milestones in that window are less predictive than they used to be. Companies often move from early product proof to real revenue very quickly, making it hard to distinguish true leaders from fast followers.