For decades, the unwritten rule of venture capital was simple: a firm does not back two companies that compete head-on. At TechCrunch Disrupt earlier this week, partners at Benchmark, a firm known for its long-term loyalty to founders, acknowledged that the artificial intelligence boom is straining that agreement to the breaking point.
The tension between exclusive investment and market competition has been building for some time. Major AI labs like OpenAI and Anthropic now share dozens of the same investors. The conflict recently became public when Factory, a startup building an AI agent to write software, fired board observer Chris Degnan. Factory alleged Degnan engaged in unethical conduct involving Cognition, a direct rival that makes the Devin coding agent. Degnan denied sharing confidential information and soon joined Cognition as chief revenue officer. Vinod Khosla, whose firm backs both companies, publicly supported Degnan.
Benchmark Partners on Evolving Conflicts
Benchmark partners described these conflicts as a matter of necessity rather than preference. Eric Vishria, a general partner at the firm, noted that companies in the current market evolve very quickly. He stated that pivots are common and that investors will inevitably encounter situations where portfolio companies overlap in their target markets.
Vishria emphasized that Benchmark remains committed to confidentiality. He downplayed the risk of information leakage, noting that venture capitalists are not product or technology experts. He suggested that Benchmark has been fortunate to avoid the type of direct conflict seen in the Factory-Cognition dispute. While he maintained that exclusivity remains important at the early stage where Benchmark operates, he admitted the landscape is changing.
Chetan Puttagunta, another Benchmark partner, pointed to the economics of software development as a key driver. He argued that as the cost of building software effectively drops to zero, founders become more ambitious. They see a larger potential market and attempt to claim it all. Puttagunta distinguished between a direct competitor at the outset, which is an easy decision to avoid, and a portfolio company that expands into another’s territory over time. He predicted that such overlaps will likely increase.
Transparency and the Co-Founder Model
Peter Fenton, a general partner at Benchmark, called the issue “kryptonite” and described it as the firm’s toughest problem. He outlined a spectrum of investor relationships. At one end are co-founders, who would never work on a competing company. At the other end are public-market stock pickers, who can own shares in multiple rivals because they only allocate capital. Benchmark sits closer to the co-founder end of that spectrum.
Fenton stressed that transparency is a golden rule for the firm. He said founders should never be surprised by a conflict after the fact. If a conflict does emerge, a founder should never feel shortchanged. Benchmark is not declaring the pact dead, but their candor suggests the industry is shifting. When a firm built on loyalty admits that conflicts are coming, other investors may follow suit.
Source: TechCrunch
