Venture capital's longstanding practice of refusing to back head-to-head competitors is buckling under the weight of the AI boom, according to partners at Benchmark who spoke at TechCrunch Disrupt this week. The firm, renowned for decades-long partnerships with early-stage founders, openly acknowledged that conflicts between portfolio companies are becoming unavoidable. While the old pact isn't officially dead, Benchmark's candor suggests a fundamental shift in how top investors navigate loyalty in an era when startups pivot rapidly and ambitions expand overnight.
The strain has been visible for months. Dozens of the same investors now back both OpenAI and Anthropic, two towering AI labs in direct competition. In late September, Factory—a startup building an AI agent for software development—fired board observer Chris Degnan for what it called "unethical conduct" related to Cognition, Factory's direct rival and creator of the Devin coding agent. Factory's CEO claimed Degnan had explored a job at Cognition while attending Factory's board meetings. Degnan denied sharing confidential information and said he'd already stepped down before announcing he was joining Cognition as chief revenue officer. Powerhouse investor Vinod Khosla, whose firm backs both companies, sided with Degnan on X and called Factory "a struggling second tier competitor."
Benchmark partner Eric Vishria described the conflicts as necessary, not preferred. "The harsh reality of this world is every company is evolving very quickly," he said, adding that pivots and expansions mean "you are going to get conflicts, and that's just the reality of the current dynamic." He emphasized the firm stays committed to each founder and keeps information confidential, and he downplayed what a VC could leak: "We are not product or technology experts." Chetan Puttagunta traced the acceleration to AI's economics. As the expense of creating software "effectively goes to zero," founders grow "incredibly ambitious" and see a vast "surface area" they want to dominate, he explained. Peter Fenton called the issue "kryptonite" and the firm's hardest challenge, describing a spectrum from co-founder (never touches a rival) to public-market investor (owns many because he's merely allocating capital). Benchmark sits closer to the co-founder end, Fenton said, and treats transparency as paramount: "There shouldn't be the surprise after the fact."
The partners drew a line between funding a direct rival from day one—which remains off-limits—and managing conflicts that emerge as companies expand into each other's domains over time. Vishria said exclusivity is still "really important" at the earliest stage Benchmark targets, but conceded "[t]hings are evolving. There's no doubt about that." Puttagunta predicted overlaps will grow more common as founders claim broader territory. Fenton stressed that if a conflict does surface, a founder should never feel shortchanged. Benchmark isn't declaring the no-compete pact finished, but when a firm built on loyalty admits conflicts are inevitable, it raises the question of which other investors will be this transparent. The acknowledgment marks a pragmatic concession: in a market where software costs plummet and ambitions soar, even the most founder-friendly firms can't promise they won't end up backing your competitor down the road. For founders weighing term sheets, the shift suggests due diligence now cuts both ways—knowing which rivals share your cap table may matter as much as the check itself.