Benchmark acknowledges AI is straining VC's no-rivals pact

For decades, an unwritten rule governed venture capital: a firm doesn’t back two companies that compete head-on. Speaking at TechCrunch Disrupt earlier this week, partners at Benchmark acknowledged that the AI boom is straining that rule, describing the resulting conflicts as a matter of necessity rather than preference as portfolio companies increasingly expand into each other’s territory.

The rule has been fraying for a while: OpenAI and Anthropic, the two towering AI labs, now share dozens of the same investors. At the end of September, Factory — a startup building an AI agent to write software — fired board observer and adviser Chris Degnan over 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 said he had already resigned and denied sharing anything confidential before announcing he was joining Cognition as chief revenue officer. Investor Vinod Khosla publicly sided with Degnan, criticizing Factory’s CEO and dismissing the company as a struggling, second-tier competitor — notably, Khosla Ventures backs both Factory and Cognition.

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. Partner Eric Vishria said Benchmark stays committed to each founder and keeps what it learns confidential, while downplaying how much a VC could pass along anyway since the firm isn’t staffed with product or technology experts. He said Benchmark has so far avoided a conflict as direct as the Factory-Cognition dispute, and that exclusivity remains important at the early stage the firm favors, while acknowledging that circumstances are evolving.

Partner Chetan Puttagunta said AI is accelerating the problem: as the cost of building software falls toward zero, ambitious founders see a larger surface area to claim and increasingly run into each other’s territory. Partner Peter Fenton called the issue “kryptonite” and the firm’s toughest problem, describing a spectrum from the co-founder, who would never back a direct competitor, to the public-market stock picker, who can hold several rivals because they are merely allocating capital rather than shaping any one company. Benchmark sits closer to the co-founder end, he said, and treats transparency — no surprise after the fact for a founder caught in a conflict — as a non-negotiable rule.

Why it matters

Benchmark isn’t declaring the no-rivals rule dead, but a firm built on founder loyalty admitting conflicts are now routine signals that AI-era capital intensity is reshaping even venture capital’s oldest norms — and that founders should expect more, not fewer, of these disclosures ahead.