AI Boom Strains Venture Capital's 'No-Rivals' Pact
Benchmark partners and other investors acknowledge that the race for AI dominance is eroding the long-standing industry rule against backing direct competitors.
The long-standing venture capital convention of avoiding investments in head-on competitors is fracturing under the pressure of the AI boom, according to reporting from TechCrunch.
Speaking at TechCrunch Disrupt, partners at Benchmark—a firm known for early-stage founder loyalty—admitted that the rule is straining. Peter Fenton described these conflicts as the firm's toughest problem, comparing the tension between acting as a dedicated co-founder versus a public-market stock picker. Eric Vishria noted that conflicts are a "reality of the current dynamic" because companies are evolving rapidly, while Chetan Puttagunta added that the plummeting cost of building software is driving founders to be more ambitious in claiming market "surface area."
This shift is already evident among industry giants; TechCrunch reports that OpenAI and Anthropic share dozens of the same investors. Recent disputes highlight the volatility of this trend. In late September, the AI software agent startup Factory fired adviser and board observer Chris Degnan for "unethical conduct" involving its direct rival, Cognition. Factory's CEO alleged Degnan discussed a role at Cognition while accessing board-level information. Degnan denied sharing confidential data and subsequently joined Cognition as chief revenue officer.
Vinod Khosla, whose firm Khosla Ventures backs both Factory and Cognition, publicly sided with Degnan on X, dismissing Factory as a "struggling second tier competitor."