Do You Know? For decades, venture capital firms generally avoided backing two companies that competed directly. Benchmark partners now say the rapid evolution of AI startups is making that rule increasingly difficult to preserve.
What changed?
Speaking at TechCrunch Disrupt earlier this week, Benchmark partners acknowledged that conflicts between portfolio companies are becoming more common as AI companies expand into one another’s markets.
Benchmark did not declare the traditional pact against backing rivals dead. Instead, its partners described the emerging conflicts as a matter of necessity rather than preference, arguing that companies are changing direction quickly and entering adjacent areas.
Why AI is intensifying the problem
Benchmark partner Chetan Puttagunta said AI is accelerating the overlap. As the cost of building software “effectively goes to zero,” he said, founders are becoming more ambitious and seeking to address a larger potential market.
That expansion can cause portfolio companies to move into territory previously associated with another investment. Puttagunta distinguished between backing direct competitors from the outset and dealing with a portfolio company that later expands into a rival’s market.
“Things are evolving. There’s no doubt about that,” Benchmark partner Eric Vishria said.
Benchmark’s position
Vishria said Benchmark remains committed to each founder and keeps what it learns confidential. He also said the firm is not a product or technology expert and therefore may have limited information it could pass between portfolio companies.
He added that exclusivity remains “really important” at the very early stage, which is where Benchmark focuses, while acknowledging that the investment landscape is changing.
Partner Peter Fenton described conflicts between portfolio companies as the firm’s toughest problem. He compared the issue with a spectrum: a co-founder would not normally work on a competing company, while a public-market investor may own several rivals because that investor is allocating capital rather than shaping the companies.
Fenton said Benchmark sits closer to the co-founder end of that spectrum and treats transparency as a core rule. In his view, founders should not be surprised after a conflict emerges or feel disadvantaged if their investor backs a company that later becomes competitive.
A recent dispute illustrates the tension
The article points to a dispute involving Factory and Cognition, two AI companies operating in related areas. Factory said in late September that it was removing 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 that Degnan had discussed a job at Cognition while privy to Factory’s board-level discussions. Degnan said he had already resigned and denied sharing confidential information. He later announced that he was joining Cognition as chief revenue officer.
Investor Vinod Khosla sided with Degnan in a post on X and criticized Factory’s CEO. Khosla Ventures backs both companies, according to the report.
Who is affected?
- Founders: They may face more uncertainty about whether an existing investor will later back a company that enters their market.
- Venture firms: They must balance portfolio expansion with confidentiality, transparency and early-stage exclusivity.
- AI startups: Rapid product and market changes can increase the chance of overlap with other companies backed by the same investor.
What happens next?
Benchmark’s partners indicated that the firm will continue to value exclusivity and founder loyalty, particularly at the earliest stages. At the same time, their comments suggest that investors and founders will need to manage more conflicts as AI companies broaden their ambitions and compete across increasingly overlapping markets.
FAQ
Has Benchmark abandoned its rule against backing rivals?
No. The firm said the rule is under pressure but did not declare it dead.
Why is AI making the issue more difficult?
Benchmark partners said AI companies are evolving quickly, while lower software-building costs encourage founders to pursue broader opportunities.
What does Benchmark say it will protect?
Eric Vishria said the firm remains committed to each founder and keeps what it learns confidential.
Why does transparency matter?
Peter Fenton said founders should not be surprised by conflicts or feel shortchanged if an investor later backs a company that becomes competitive.
Bottom Line
AI’s rapid expansion is weakening the practical certainty behind venture capital’s traditional no-rivals pact. Benchmark still values exclusivity, but its partners acknowledge that overlapping portfolio companies are becoming an unavoidable feature of the market.
Source
This report is based on information published by TechCrunch.
