Benchmark partners say fast-moving AI startups increasingly collide with portfolio peers, weakening venture capital's traditional aversion to backing rivals. The shift puts disclosure, information controls and board access under greater scrutiny.
Artificial intelligence is eroding one of venture capital's oldest trust rules: do not back two companies that compete directly. Benchmark, a firm known for concentrated early-stage bets and long founder relationships, now says portfolio conflicts are becoming harder to avoid as AI startups expand into adjacent markets.
The immediate dispute involves Factory and Cognition, rival developers of coding agents. Factory said it removed board observer and adviser Chris Degnan over alleged conduct involving Cognition. Degnan denied sharing confidential information and later joined Cognition as chief revenue officer. Khosla Ventures backs both companies, illustrating how overlapping ownership can place access, loyalty and information barriers under pressure.
Benchmark partners drew a line between knowingly investing in direct rivals at the outset and companies that move into each other's markets later. Eric Vishria said the firm still treats early-stage exclusivity as important, while Chetan Puttagunta argued that cheaper software development encourages founders to pursue a wider surface area. Peter Fenton described conflicts as one of the firm's hardest problems and said transparency should prevent founders from learning about them after the fact.
Governance becomes part of the investment
For limited partners, the issue is not simply etiquette. A venture firm may hold board seats, observer rights and confidential operating data across its portfolio. If two companies converge, the firm must decide who keeps access, whether information barriers are credible and whether either founder receives less support. Those decisions can affect financing, recruiting and exit negotiations.
AI accelerates the problem because product boundaries move faster than traditional fund cycles. OpenAI and Anthropic already share numerous investors, while coding, search, enterprise software and agent platforms increasingly overlap. That does not prove confidential information is being misused, but it raises the value of written conflict policies and prompt disclosure.
Investors evaluating private funds should ask how managers define competition, handle board access after a conflict emerges and document recusals. Benchmark is not declaring exclusivity dead. Its comments instead show that trust protections once enforced by a simple no-rivals rule now require active governance.
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