Benchmark Says AI Is Straining Venture Capital's Longstanding No-Rivals Pact
For decades, venture capital operated under an unwritten rule: a firm doesn't back two companies that compete head-on. But speaking at TechCrunch Disrupt earlier this week, the partners of Benchmark openly acknowledged that the AI boom is straining that rule.
The tension has been building for some time. Towering AI labs OpenAI and Anthropic now share dozens of the same investors. Then, at the end of September, Factory—a startup building an AI agent to write software—announced it was firing board observer and adviser Chris Degnan for "unethical conduct involving Cognition," its direct rival and the maker of the Devin coding agent.
Factory's CEO alleged that Degnan had discussed a job at Cognition while privy to Factory's board-level discussions. Degnan said he had already resigned and denied sharing anything confidential. Soon after, he announced he was joining Cognition as chief revenue officer. Powerhouse investor Vinod Khosla sided with Degnan on X, blasting Factory's CEO and calling the company "a struggling second tier competitor." Khosla Ventures backs both companies.
Even Benchmark—a firm whose reputation rests on 10-to-15-year partnerships with founders at the earliest stage—said the old rule can no longer be counted on. Asked at Disrupt whether the pact against backing rivals still holds as portfolio companies expand into each other's territory, its partners described the conflicts as a matter of necessity, not preference.
'Every Company Is Evolving Very Quickly'
"The harsh reality of this world is every company is evolving very quickly," said Eric Vishria. Companies pivot and change, he said, and "you are going to get conflicts, and that's just the reality of the current dynamic."
Vishria said Benchmark stays committed to each founder and keeps what it learns confidential, and he downplayed how much a VC could pass along anyway: "We are not product or technology experts." Seemingly referring to the Factory-Cognition dispute, he said Benchmark has been fortunate not to land in "that type of insane direct conflict." Exclusivity, he said, remains "really important" at the very early stage Benchmark favors. "But things are evolving. There's no doubt about that."
AI Is Accelerating the Problem
Chetan Puttagunta said AI is accelerating the problem. As the cost of building software "effectively goes to zero," he said, founders are "incredibly ambitious." 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 drew a line between a direct competitor at the outset, which he called "an easy answer," and a portfolio company that expands into another's turf over time. "That happens," he said.
'Kryptonite' and the Toughest Problem
Peter Fenton called the issue "kryptonite" and the firm's toughest problem. He described a spectrum of how investors relate to their companies. 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." If a conflict does emerge, a founder should never feel shortchanged, he added.
Benchmark isn't declaring the pact dead. At the same time, when a firm that built its name on loyalty says conflicts are coming, founders might rightly wonder who else will be this candid.
via TechCrunch