AI Boom Tests Venture Capital Pact Against Backing Rivals

For decades, a foundational unwritten rule governed the venture capital industry: firms refrained from backing multiple companies operating in direct competition with one another. However, according to reporting by TechCrunch, partners at renowned venture firm Benchmark acknowledged during an appearance at TechCrunch Disrupt that the artificial intelligence boom is placing immense strain on that long-standing principle.

Signs of strain have been visible across the industry. High-profile AI labs such as OpenAI and Anthropic share numerous mutual investors. Meanwhile, tensions boiled over in late September when Factory, a startup developing an AI agent to write software, ousted board observer Chris Degnan due to alleged unethical conduct concerning Cognition, a direct competitor and creator of the Devin coding agent. Factory’s leadership alleged that Degnan discussed employment with Cognition while possessing confidential board information. Degnan denied sharing sensitive data, noting he had already resigned prior to joining Cognition as its chief revenue officer. Prominent investor Vinod Khosla, whose firm Khosla Ventures backs both entities, publicly defended Degnan on social media.

Speaking at the event, Benchmark partners addressed how shifting company strategies complicate traditional boundaries. Eric Vishria explained that portfolio companies frequently pivot and evolve rapidly as market dynamics change, making conflicts an inevitable reality rather than a preference. While Vishria emphasized that Benchmark remains dedicated to maintaining confidentiality and supporting individual founders, he noted that early-stage exclusivity remains a priority even as the broader landscape transforms.

Chetan Puttagunta pointed to artificial intelligence as an accelerator of these market collisions. As the expense of building software decreases toward zero, ambitious founders aim to capture vast market surface areas, increasing the likelihood that growing startups will eventually intersect. Peter Fenton described the dilemma as the firm’s most difficult challenge, contrasting the deep, co-founder-like relationships Benchmark strives to maintain with the detached approach of public-market investors who freely hold competing stocks.

Why It Matters

The candid admissions from Benchmark highlight a structural shift in how venture capital must navigate an increasingly crowded and fast-moving technological landscape. As artificial intelligence lowers barriers to entry and broadens the strategic ambitions of early-stage startups, traditional boundaries defining portfolio exclusivity may become increasingly difficult to enforce. For founders, this evolving dynamic suggests that managing investor relationships and maintaining strict data confidentiality will require heightened vigilance. Furthermore, as firms grapple with these inevitable overlaps, startup leadership teams may need to establish clearer boundaries regarding information sharing when investors hold stakes across competing ventures.

Illustration: AI-generated image, not a photograph of the event.