For decades, venture capital operated under an unwritten rule: firms do not back companies that directly compete with one another. At TechCrunch Disrupt this week, Benchmark partners acknowledged that the artificial intelligence boom is putting that long-standing norm under serious pressure.
That norm has been fraying for some time. Leading AI labs OpenAI and Anthropic already share dozens of common investors. In late September, Factory—a startup building an AI coding agent—terminated board observer and adviser Chris Degnan, citing “unethical conduct involving Cognition,” its direct rival and creator of the Devin coding agent. Factory’s CEO alleged that Degnan discussed a position at Cognition while privy to board-level discussions at Factory. Degnan said he had already resigned and denied sharing confidential information; shortly afterward, he joined Cognition as chief revenue officer. Prominent investor Vinod Khosla backed Degnan on X, criticizing Factory’s CEO and describing the company as “a struggling second tier competitor.” Notably, Khosla Ventures is an investor in both firms.
Even Benchmark—known for decade-long partnerships with early-stage founders—said the old rule can no longer be relied upon. Asked at Disrupt whether the prohibition on backing rivals still applies as portfolio companies encroach on each other’s markets, its partners characterized these conflicts as necessary rather than optional.
“The harsh reality is that every company is evolving very quickly,” said Eric Vishria. “Companies pivot and change, so conflicts are inevitable—that is simply the reality of the current dynamic.”
Vishria said Benchmark remains committed to each founder and treats information as confidential, noting that venture capitalists are not product or technology experts. Referring indirectly to the Factory-Cognition dispute, he said Benchmark has been fortunate to avoid “that type of insane direct conflict.” Exclusivity, he added, remains “really important” at the early stage where Benchmark typically invests. “But things are evolving. There is no doubt about that.”
Chetan Puttagunta said AI is accelerating the issue. As software development costs “effectively go to zero,” founders have become “incredibly ambitious,” he said. Seeing a broad “surface area” to claim, they are increasingly likely to overlap: “It’s probably going to happen more, where you start to run into each other.”
He distinguished between a direct competitor from the outset—“an easy answer”—and a portfolio company that expands into another’s territory over time. “That happens,” he said.
Peter Fenton called the issue “kryptonite” and the firm’s most difficult challenge. He described a spectrum of investor involvement. At one end sits the co-founder, who would never work on a competing company. At the other is the public-market stock picker, who can hold shares in several rivals because they allocate capital without shaping the companies. Benchmark sits closer to 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. Yet when a firm built on loyalty says conflicts are coming, founders may reasonably wonder who else will be this candid.