For decades, the unwritten social contract of Silicon Valley venture capital was built on a foundation of absolute exclusivity: a firm simply does not back two companies that compete head-on. This long-standing rule was designed to protect sensitive intellectual property, prevent internal conflicts of interest, and ensure that investors could serve as undivided confidants to the founders they backed. But speaking at TechCrunch Disrupt earlier this week, the partners of legendary early-stage firm Benchmark readily acknowledged that the unprecedented, sprawling nature of the artificial intelligence boom is straining that rule to its absolute breaking point.
Even before the discussions at Disrupt, the traditional boundaries of VC exclusivity had been on the verge of snapping under the immense pressure of the generative AI revolution. Today, towering foundational AI labs such as OpenAI and Anthropic share dozens of the exact same institutional investors, a reality that would have been unthinkable during previous technological waves.
The friction caused by these overlapping bets spilled dramatically into public view at the end of September. Factory, a startup that builds sophisticated AI agents designed to autonomously write software, publicly announced it was firing its board observer and adviser, Chris Degnan. The reason cited by the company was "unethical conduct involving Cognition," its direct, fierce rival and the creator of the Devin coding agent.
According to Factory’s CEO, Degnan had allegedly discussed a potential job opportunity at Cognition while he was still privy to sensitive, board-level discussions at Factory. Degnan fired back, stating that he had already resigned from his position at Factory prior to the public accusations and vehemently denying that he had ever shared any confidential company information. Shortly after the public dispute erupted, Degnan officially announced he was joining Cognition as its chief revenue officer.
The high-stakes drama drew reactions from across the venture capital ecosystem, highlighting how messy these overlapping investments can become. Powerhouse investor Vinod Khosla quickly sided with Degnan on X, publicly blasting Factory’s CEO and dismissing the company as "a struggling second tier competitor." Notably, Khosla Ventures is an investor in both warring startups, illustrating the delicate and often volatile positions that multi-backed venture firms find themselves navigating in the current market.
Even Benchmark—a firm whose sterling reputation rests on long-term, 10-to-15-year partnerships with founders at the earliest possible stage—admitted that the old rule of non-competing portfolio companies can no longer be blindly counted on. When asked at Disrupt whether their strict pact against backing rivals still holds as portfolio companies inevitably expand into each other’s territory, Benchmark partners described these emerging conflicts not as a matter of preference, but as an inescapable matter of necessity.
"The harsh reality of this world is every company is evolving very quickly," said Benchmark general partner Eric Vishria. Explaining that modern startups constantly pivot, adapt, and expand their product scopes, Vishria added that "you are going to get conflicts, and that’s just the reality of the current dynamic."
Despite these systemic pressures, Vishria emphasized that Benchmark remains deeply committed to each individual founder they back and strictly maintains the confidentiality of what they learn behind closed doors. He also downplayed the extent to which a venture capitalist could realistically pass along proprietary secrets, noting with characteristic bluntness, "We are not product or technology experts."
Seemingly alluding to the messy public dispute between Factory and Cognition, Vishria noted that Benchmark has fortunately managed to avoid landing in "that type of insane direct conflict." He maintained that strict exclusivity remains "really important" at the very earliest seed and Series A stages that Benchmark traditionally favors. Even so, he conceded that the landscape is shifting beneath their feet, concluding, "But things are evolving. There’s no doubt about that."
Chetan Puttagunta, another general partner at Benchmark, expanded on these thoughts, pointing out that the economics and capabilities of modern artificial intelligence are drastically accelerating the problem. As the cost of building software and launching tech startups "effectively goes to zero," Puttagunta observed, founders are becoming "incredibly ambitious." Because modern software developers and AI entrepreneurs now look at a massive digital "surface area" and want to claim all of it for themselves, market overlap is becoming standard practice. "It’s probably going to happen more, where you start to run into each other," he said.
Puttagunta carefully drew a line between funding a direct competitor right out of the gate—which he characterized as "an easy answer" and a clear violation of traditional trust—versus a portfolio company that organically expands into another existing company’s turf over time as their business models evolve. "That happens," he said, highlighting the gray area that modern investors must navigate.
For Peter Fenton, another veteran partner at Benchmark, the issue goes straight to the core of venture capital ethics, describing the dilemma as "kryptonite" and the firm’s toughest operational problem. Fenton described a wide spectrum of how institutional investors relate to the companies in their portfolios.
At one end of this spectrum, Fenton explained, is the traditional co-founder mentality—an archetype that Benchmark strives to embody—who would fundamentally never work on a competing company because of the deep personal trust involved. At the other end of the spectrum is the public-market stock picker, who can comfortably own shares in several direct competitors simultaneously because they are merely allocating financial capital rather than actively shaping the strategy or governance of the businesses.
Fenton noted that Benchmark sits much closer to the co-founder end of the spectrum, treating absolute transparency as a golden rule. "There shouldn’t be the surprise after the fact," Fenton said, emphasizing that if a conflict of interest does eventually emerge, a founder should never feel shortchanged or betrayed by their backers.
While Benchmark is certainly not declaring the traditional exclusivity pact entirely dead, the firm’s candid admission that widespread conflicts are becoming inevitable carries significant weight across the industry. When a venture capital firm that built its foundational name on unwavering loyalty and early-stage partnership openly warns that portfolio collisions are coming, founders across Silicon Valley might rightly wonder which other investors will maintain their traditional boundaries—and who else will be this candid about the shifting rules of the AI gold rush.
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