Even Benchmark thinks AI is eroding the venture pact against backing rivals

Key points

• Benchmark partners said the AI boom is straining the unwritten venture rule against backing rival companies.
• The Factory-Cognition dispute over Chris Degnan highlighted the conflict, with Vinod Khosla siding with Degnan.
• Benchmark's Eric Vishria said conflicts are now a reality as companies evolve quickly.

At TechCrunch Disrupt earlier this week, partners at Benchmark acknowledged that the AI boom is straining the unwritten venture capital rule against backing two companies that compete head-on. The firm, known for 10-to-15-year partnerships with founders at the earliest stage, said the old pact can no longer be counted on as portfolio companies expand into each other's territory.

The issue has been building for some time. AI labs OpenAI and Anthropic share dozens of the same investors. At the end of September, Factory, a startup building an AI agent to write software, said it was firing board observer and adviser Chris Degnan for 'unethical conduct involving Cognition,' its direct rival and maker of the Devin coding agent.

What Benchmark partners said

Asked whether the pact against backing rivals still holds, Benchmark's partners described the conflicts as a matter of necessity. Eric Vishria said, 'The harsh reality of this world is every company is evolving very quickly.' He added that companies pivot and change, so '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. He downplayed how much a VC could pass along, saying, 'We are not product or technology experts.' He said Benchmark has been fortunate not to land in 'that type of insane direct conflict,' seemingly referring to the Factory-Cognition dispute. Exclusivity remains 'really important' at the very early stage, he said, 'But things are evolving. There's no doubt about that.'

The harsh reality of this world is every company is evolving very quickly

— Eric Vishria

AI accelerating the problem

Chetan Puttagunta said AI is accelerating the problem. As the cost of building software 'effectively goes to zero,' founders are 'incredibly ambitious.' Because they now see a 'surface area' and want to claim all of it, he said, '[i]t's probably going to happen more, where you start to run into each other.' He distinguished a direct competitor at the outset, which he called 'an easy answer,' from a portfolio company that later expands into another's turf. 'That happens,' he said.

Peter Fenton called the issue 'kryptonite' and the firm's toughest problem. He described a spectrum from co-founder, who would never work on a competing company, to public-market stock picker, who can own several rivals because he is merely allocating capital. 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,' he said, adding that a founder should never feel shortchanged if a conflict emerges.