Benchmark Concedes AI Is Breaking Venture Capital's No-Rivals Pact

By Daniel Okafor

Benchmark, the venture firm that built its name on decade-long founder partnerships, said this week that the industry's unwritten rule against backing direct competitors no longer holds. The admission came from the firm's own partners, speaking on stage at TechCrunch Disrupt.

The rule has been buckling for a while. OpenAI and Anthropic, the two dominant AI labs, already share dozens of the same investors. Then, at the end of September, Factory — a startup building an AI agent that writes software — fired 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 discussed a job at Cognition while sitting in on Factory's board-level discussions. Degnan said he had already resigned and denied sharing anything confidential. He then joined Cognition as chief revenue officer.

Vinod Khosla, whose Khosla Ventures backs both companies, sided with Degnan on X. He called Factory "a struggling second tier competitor."

What did Benchmark's partners actually say?

Asked whether the pact against backing rivals still holds as portfolio companies expand into each other's territory, the partners framed the conflicts as a matter of necessity, not preference.

"The harsh reality of this world is every company is evolving very quickly," said Eric Vishria. "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. He also downplayed how much a venture investor could leak in the first place: "We are not product or technology experts." Seemingly referring to the Factory-Cognition fight, he said Benchmark has been fortunate not to land in "that type of insane direct conflict." Exclusivity, he said, still matters at the very early stage Benchmark favors. "But things are evolving. There's no doubt about that."

Why is AI accelerating the collisions?

Partner Chetan Puttagunta drew the mechanism. As the cost of building software "effectively goes to zero," he said, founders are "incredibly ambitious." They see a larger "surface area" and want to claim all of it.

"[I]t's probably going to happen more, where you start to run into each other," Puttagunta said.

He drew a line between two cases. Backing a direct competitor at the outset is "an easy answer" — don't do it. A portfolio company that later expands into another's turf is different. "That happens," he said.

The economics explain it. When software costs almost nothing to build, every well-funded AI company can chase every adjacent market, which multiplies the odds that two startups in one portfolio end up fighting for the same customers.

How does Benchmark manage the conflict?

Peter Fenton called the issue "kryptonite" and the firm's toughest problem. He laid out a spectrum of how investors relate to their companies.

• At one end sits the co-founder, who would never work on a competing company.
• At the other sits the public-market stock picker, who can own several rivals because he allocates capital without shaping any of them.
• Benchmark, Fenton said, sits nearer the co-founder end.

The firm's operating rule is transparency. "There shouldn't be the surprise after the fact," Fenton said. If a conflict does emerge, a founder should never feel shortchanged, he added.

What does this mean for founders?

Benchmark has not declared the pact dead. But when a firm whose reputation rests on 10-to-15-year partnerships at the earliest stage says conflicts are coming, founders can reasonably ask whether their other investors will be this candid — and whether the Factory-Cognition blowup was an outlier or a preview.