Benchmark says AI boom is eroding venture capital's rule against backing rivals

Benchmark, the venture capital firm whose reputation rests on decade-long partnerships with founders at the earliest stage, has publicly conceded that the AI boom is wearing down one of the industry's oldest unwritten rules: that a firm does not back two startups competing head-on. Speaking at TechCrunch Disrupt, the firm's partners described the resulting conflicts as a matter of necessity rather than preference, according to TechCrunch.

A norm already showing cracks

The taboo against funding rivals has been weakening for a while. As TechCrunch notes, OpenAI and Anthropic, the two most prominent AI labs, already share dozens of the same investors.

The strain turned public at the end of September. Factory, a startup building an AI agent that writes software, dismissed board observer and adviser Chris Degnan for what it called "unethical conduct involving Cognition," its direct rival and the 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 countered that he had already resigned and denied sharing anything confidential, and shortly afterward he announced he was joining Cognition as chief revenue officer. Investor Vinod Khosla then publicly backed Degnan on X, criticized Factory's CEO and called the company "a struggling second tier competitor." Khosla Ventures backs both startups.

What Benchmark's partners said

Asked whether the old pact still holds as portfolio companies expand into each other's territory, the partners were candid. "The harsh reality of this world is every company is evolving very quickly," said Eric Vishria, adding that because companies pivot and change, "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, and he downplayed how much a venture investor could pass along anyway: "We are not product or technology experts." Referring obliquely to the Factory-Cognition dispute, he said Benchmark has been fortunate to avoid "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."

Partner Chetan Puttagunta argued AI is accelerating the problem. As the cost of building software goes "effectively to zero," founders have become "incredibly ambitious," spotting a wider "surface area" of opportunity and trying to claim all of it. As a result, "it's probably going to happen more, where you start to run into each other." He drew a distinction between backing a direct competitor from the outset — which he called "an easy answer" — and a portfolio company that later expands into another's turf. Of the second scenario, he said simply: "That happens."

Transparency as the safeguard

Partner 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 sits the co-founder, who would never work with a competing business; at the other, the public-market stock picker, who can hold stakes in several rivals because he is allocating capital rather than shaping any single company. 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." If a conflict does emerge, he added, a founder should never feel shortchanged.

Notably, Benchmark is not declaring the pact dead. But as TechCrunch observes, when a firm that built its name on founder loyalty openly says conflicts are coming, founders may reasonably wonder who else in the industry will be this honest.

Why it matters

The admission from one of Silicon Valley's most founder-aligned firms signals a structural shift in how venture capital operates during the AI race. If even Benchmark accepts overlapping portfolios as inevitable, founders should treat conflict checks as standard diligence: an investor's existing stakes, board observer arrangements and confidentiality practices now matter as much as the check itself. The Factory-Cognition episode shows how quickly these situations can turn messy, with information-flow allegations playing out in public and investors caught endorsing one portfolio company over another. For an industry already normalizing shared investors across the largest AI labs, the long-standing promise of exclusivity is becoming a privilege of the earliest stages rather than a durable guarantee.