Businessupdated 1h ago2 min read
Benchmark Partners Say AI Boom Erodes Venture Pact Against Backing Rival Startups
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AI boom strains the unwritten venture-pact against backing rival startups. Benchmark partners publicly acknowledged at TechCrunch Disrupt that the rule is near-breaking.
AI strains non-compete
Benchmark partners acknowledged at TechCrunch Disrupt that the AI boom is straining the venture capital rule of not backing rival companies. Eric Vishria said, "The harsh reality of this world is every company is evolving very quickly," as Benchmark described conflicts as a matter of necessity rather than preference.
Chetan Puttagunta said lower software development costs are fueling founders’ ambition to cover the entire available market, adding, "[i]t’s probably going to happen more, where we start to run into each other." Peter Fenton called the issue "kryptonite" for investors, describing a spectrum from cofounders who would never work at a competing company to public-market stock pickers who can own several rivals.
Factory, Cognition dispute
Factory fired its board observer and adviser Chris Degnan for "unethical conduct involving Cognition," and Factory’s CEO alleged Degnan discussed a job at Cognition while privy to Factory’s board-level discussions. Degnan denied sharing anything confidential, and he announced he was joining Cognition as chief revenue officer.
Vinod Khosla sided with Degnan on X, blasting Factory’s CEO and calling the company "a struggling second tier competitor." Benchmark said it has been fortunate not to land in "that type of insane direct conflict," while still emphasizing that exclusivity remains "really important" at the very early stage it favors.
Transparency and founder trust
Benchmark said it stays committed to each founder and keeps what it learns confidential, while also downplaying how much a VC could pass along by saying, "We are not product or technology experts." Benchmark framed transparency as a golden rule, with Peter Fenton saying, "There shouldn’t be the surprise after the fact."
The TechCrunch Disrupt conversation also tied the changing market to founders’ incentives, with Benchmark partners describing how companies pivot and change as they evolve into each other’s territory. Benchmark said it is not declaring the pact dead, but it acknowledged that conflicts are increasingly common, a stance that could cause founders to question investors’ loyalty as competition intensifies.