From 'heartburn' to $14 billion: Inside Menlo's early Anthropic investment that broke all the rules.

Anthropic was too expensive, too early, and had no revenue. Menlo Ventures invested anyway, and that gamble is now worth an estimated $14 billion.

When partner Matt Murphy met cofounder and CEO Dario Amodei on a five-minute Zoom meeting in early 2023, Anthropic was pre-revenue and had not publicly launched its model. The $4.1 billion valuation it sought was far above Menlo's usual venture range, and the company was still too early for its growth fund.

"There was definitely some heartburn within the firm," Murphy told Business Insider in an interview where he shared the investment's origin story. (He could not discuss the IPO or Anthropic's current financials because the company is in an SEC-mandated quiet period.)

Even with OpenAI already valued at $29 billion in 2023, Murphy thought the market had room for a formidable rival. After just a brief Zoom call, he walked away convinced that Amodei could build the Pepsi to OpenAI's Coke.

"I was blown away by his energy, his description of what they had built and why they thought that there was room in the market for another player," Murphy said. "We just had to be in this company."

As Anthropic prepares to go public later this year, Menlo Ventures will be one of the biggest winners, turning an estimated $1 billion stake into around $14 billion, according to sources familiar with the matter. The firm has invested in every round since 2023 and also launched the Menlo Anthology Fund in partnership with Anthropic to back early-stage AI startups.

Menlo's bet on Anthropic has been transformative for the 50-year-old firm, which has long been respected in Silicon Valley for wins like Uber and Roku but was not usually mentioned in the same breath as the industry's most prestigious names.

Menlo recently announced it has raised $3 billion in new funding, more than double what it raised three years ago.

Convinced there was room for an OpenAI rival

Anthropic's latest funding round valued it at $965 billion, above the $852 billion valuation OpenAI received in its most recent financing, an outcome that would have seemed almost inconceivable when Menlo first invested in 2023.

"OpenAI was the household name, and so far ahead with ChatGPT," Murphy said. He joined Menlo in 2015 after making the unusual move to leave Kleiner Perkins, a much larger firm.

Murphy's decades in venture had convinced him that even markets with a clear leader can support a highly valuable challenger, such as Lyft to Uber or AMD to Nvidia.

"There's going to be at least two independent companies, it feels like there always are in venture markets," Murphy said. "And ultimately, one is the really big winner, and the second is the kind of decent winner. And we said, 'Hey, look, at minimum, this market's so big that being the number two here is going to lead to great things.'"

Even then, he thought Anthropic had superior people and technology and was far more efficient.

"They had done so much more on so much less capital," Murphy said, adding that he was drawn to Amodei's sense of mission.

Amodei, OpenAI's former vice president of research, left the company in late 2020 and founded Anthropic the following year with his sister, Daniela, and several other former OpenAI employees after disagreements over OpenAI's direction, including how quickly to scale increasingly powerful models and how to balance that progress with safety.

"Dario always came across much more as just a pure technologist at heart who was very mission-driven and wanted to do something great to be disruptive in a positive way to the technology industry and ultimately society," he said.

Not making the same mistake again

Menlo participated in Anthropic's Series C, but stopped short of leading it. "They said, 'Hey, do you want to lead?' And we're like, 'You know what? It's already a $4.1 billion valuation. We're a venture firm. We don't invest in companies with no revenue at 4.1 billion," Murphy said.

Rival firm Spark Capital ultimately led the round and is now sitting on an estimated 100-fold markup on its investment. Hindsight is always 20/20, especially in venture, and Murphy says now he wishes he had found a way to lead.

"I wish we'd broken the rules a little bit more in the Series C," he said.

They would not make the same mistake again.

Menlo led Anthropic's Series D a year later, writing the firm's largest-ever check. Even then, it was not enough, and Menlo used an SPV, or special-purpose vehicle, to raise some of the $500 million.

At the time, Anthropic was generating close to $100 million in annualized revenue, and Murphy says many still scoffed at the $18.4 billion valuation Menlo agreed to pay. Murphy said he had seen enough momentum, particularly after Anthropic secured investments and commercial partnerships with Google and Amazon.

"The key was getting in and getting that lens and being able to track the company in a way that other people were not," he said. "And as soon as we saw it really breaking out, we pounced."

While raising Anthropic's Series C and Series D rounds was difficult, Murphy said that the skepticism soon evaporated. By December 2024, its annualized revenue surged to roughly $1 billion, a tenfold increase in just one year.

"And then after that, everything got easy," he said.