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Even Benchmark thinks AI is eroding the venture pact against backing rivals
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Benchmark, one of Silicon Valley’s most storied venture capital firms, has acknowledged that the artificial intelligence boom is eroding the industry’s long-standing unwritten rule against backing direct competitors. Speaking at TechCrunch Disrupt earlier this week, Benchmark partners said the old prohibition is increasingly difficult to maintain as AI startups pivot and expand into one another’s markets. The admission signals that even firms built on founder loyalty and early-stage exclusivity are rethinking how to manage conflicting portfolio interests.
For decades, venture capitalists generally avoided funding two companies that competed head-on. That pact has been under pressure for some time, as towering AI labs OpenAI and Anthropic now share dozens of the same investors. The tension spilled into public view in late September when Factory, a startup building an AI agent to write software, said it was firing board observer and adviser Chris Degnan for “unethical conduct involving Cognition,” its direct rival and maker of the Devin coding agent. Factory’s CEO alleged Degnan had discussed a job at Cognition while privy to Factory’s board-level discussions. Degnan said he had already resigned, denied sharing confidential information, and soon announced he was joining Cognition as chief revenue officer.
Powerhouse investor Vinod Khosla then sided with Degnan on X, blasting Factory’s CEO and calling the company “a struggling second tier competitor.” Khosla Ventures backs both Factory and Cognition, illustrating how entangled AI investments have become. The dispute underscores the practical and ethical hazards of backing rivals in a sector where talent, technology, and corporate boundaries shift rapidly. It also shows that conflicts can become personal and public, not merely theoretical governance issues.
At Disrupt, Benchmark’s Eric Vishria described conflicts as a matter of necessity rather than preference. “The harsh reality of this world is every company is evolving very quickly,” he said, adding that companies pivot and change, so “you are going to get conflicts, and that’s just the reality of the current dynamic.” Vishria said Benchmark remains committed to each founder and keeps what it learns confidential, while downplaying how much a VC could pass along anyway: “We are not product or technology experts.” He said Benchmark has been fortunate not to land in “that type of insane direct conflict,” referring to the Factory-Cognition dispute.
Chetan Puttagunta said AI is accelerating the problem. As the cost of building software “effectively goes to zero,” founders are “incredibly ambitious,” he explained. Because they now see a “surface area” and want to claim all of it, he continued, “[i]t’s probably going to happen more, where you start to run into each other.” He distinguished between a direct competitor at the outset, which he called “an easy answer,” and a portfolio company that later expands into another’s turf, which “happens.”
Peter Fenton called the issue “kryptonite” and the firm’s toughest problem. He described a spectrum of investor-company relationships: at one end is the co-founder, who would never work on a competing company; at the other is the public-market stock picker, who can own several rivals because he is merely allocating capital, not shaping any of them. Benchmark sits nearer the co-founder end, Fenton said, and treats transparency as a golden rule. “There shouldn’t be the surprise after the fact,” he said, adding that if a conflict emerges, a founder should never feel shortchanged.
Benchmark is not declaring the pact dead, and exclusivity remains “really important” at the very early stage it favors, Vishria said. “But things are evolving. There’s no doubt about that.” As AI blurs industry boundaries and ambitious founders chase expansive opportunities, the venture industry may face more such collisions. When a firm that built its name on loyalty says conflicts are coming, founders might rightly wonder who else will be this candid.
