Benchmark Says AI Erodes VC Pact Against Rivals

Venture firm Benchmark said the long-standing venture capital norm against backing head-to-head competitors is coming under pressure as the AI boom pushes startups to expand faster into overlapping markets. Speaking at TechCrunch Disrupt, Benchmark partners described the eroding rule as a practical reality of the current AI landscape rather than a deliberate shift in strategy. The comments underscore how rapidly AI companies are converging, even as investors try to maintain founder trust. The issue has been building across the AI sector. OpenAI and Anthropic already share a broad base of investors, reflecting the scale and capital intensity of frontier model development. The tension became more visible after Factory, an AI coding startup, fired board observer and adviser Chris Degnan for alleged unethical conduct involving Cognition, its direct competitor and maker of the coding agent Devin. Factory’s chief executive accused Degnan of discussing a job at Cognition while having access to Factory’s board-level discussions. Degnan said he had already resigned and denied sharing confidential information, then joined Cognition as chief revenue officer. The dispute also drew investor attention. Vinod Khosla publicly backed Degnan on X and criticized Factory’s chief executive, calling Factory a weaker competitor. Khosla Ventures, however, backs both Factory and Cognition, highlighting the conflict inherent in backing overlapping AI companies. Benchmark’s partners addressed the growing concern directly. Eric Vishria said portfolio companies are evolving so quickly that conflicts are increasingly unavoidable. He argued that pivots and changing product boundaries make direct competition more likely, even when investors act in good faith. Vishria said Benchmark remains committed to each founder and keeps portfolio company information confidential, but added that venture capitalists are not typically product or technology experts, limiting what they could effectively pass between competing companies. He noted Benchmark has avoided a direct conflict of the kind seen in the Factory-Cognition dispute. Chetan Puttagunta said AI is accelerating the problem because falling software development costs are emboldening founders to pursue broader ambitions. As companies expand their product surfaces, investors are more likely to encounter overlap between portfolio companies. Puttagunta distinguished between backing a direct competitor from the outset, which he described as an easy decision to avoid, and situations where one company grows into another’s territory over time. That scenario, he said, is more common and more difficult to manage. Peter Fenton framed the conflict as a core challenge for Benchmark, describing it as a “kryptonite” issue for the firm. He characterized investor relationships as a spectrum, with co-founders on one end and public-market investors on the other. Benchmark operates closer to the co-founder model, meaning trust and transparency are essential. Fenton said founders should not learn about potential conflicts after the fact and should not feel shortchanged by the firm’s capital allocation choices. Benchmark stopped short of declaring the anti-rivalry pact obsolete, but its comments signal a broader reckoning inside venture capital. For decades, alignment and loyalty were central to early-stage investing, especially for firms that emphasize long-term founder relationships. The AI boom, however, is compressing product timelines, expanding market ambitions and concentrating capital among fewer investors. As a result, conflicts are becoming harder to avoid, even for investors that built their reputations on close partnerships with founders.