Benchmark acknowledges AI boom is eroding venture capital's unwritten rule against backing competing startups
As AI companies rapidly expand into overlapping territory, even firms built on founder loyalty are conceding that portfolio conflicts have become unavoidable.
What happened
At TechCrunch Disrupt, Benchmark partners acknowledged that the traditional venture capital pact against backing direct competitors is straining under pressure from the AI boom. The firm cited a September incident where Factory fired board observer Chris Degnan for allegedly discussing a Cognition job while privy to Factory's confidential board discussions; Degnan later joined Cognition as chief revenue officer, and investor Vinod Khosla—who backs both companies—publicly sided with Degnan and criticized Factory. Benchmark partner Eric Vishria attributed the erosion to rapid company evolution and pivots, saying conflicts are now "just the reality of the current dynamic." Partner Chetan Puttagunta specifically flagged AI as accelerating the problem, noting that as software development costs approach zero, founders are increasingly ambitious about claiming broad market territory. Peter Fenton called the issue "kryptonite" and described Benchmark's position as closer to the co-founder end of an investor spectrum, emphasizing transparency as a golden rule to prevent founder surprise.
Context
The traditional venture rule reflected the assumption that a VC firm's deep, long-term partnerships with founders would be incompatible with backing true competitors—conflicts of interest would be unavoidable and trust would erode. The AI sector is testing this assumption because companies now scale and pivot into adjacent markets far faster than the model anticipated, and the capital efficiency of software means many founders can simultaneously chase overlapping opportunities. The Degnan-Factory-Cognition incident illustrates concrete stakes: information asymmetry, alleged confidentiality breaches, and public investor positioning that favors one portfolio company over another. Benchmark's candor—conceding that the pact cannot be relied upon while still claiming to manage conflicts through transparency—may signal to founders that even the most founder-aligned VCs may back their rivals, potentially reshaping how founders evaluate investor loyalty.