Benchmark Partners Acknowledge AI Boom Straining VC Rule Against Backing Rivals

VC Non-Compete Rule Under Strain

Venture capital firm Benchmark's partners, speaking at TechCrunch Disrupt, acknowledged that the long-standing unwritten rule of not backing two directly competing companies is being challenged by the AI boom. This traditional pact has been weakening, with examples like OpenAI and Anthropic sharing many investors.

Recent Conflict Highlights Issue

A recent dispute involving Factory and Cognition, two AI software writing companies, illustrates the problem. Factory accused a board observer, Chris Degnan, of unethical conduct for discussing a job at rival Cognition while privy to Factory's board discussions. Degnan later joined Cognition as chief revenue officer, with investor Vinod Khosla, who backs both companies, siding with Degnan.

Benchmark's Perspective on Evolving Dynamics

Benchmark partners, including Eric Vishria, described conflicts as a necessity rather than a preference in the current dynamic. Vishria noted that companies are evolving quickly, leading to inevitable conflicts as they expand. He emphasized Benchmark's commitment to founders and confidentiality, downplaying the extent of information VCs could pass between companies.

AI Accelerating Overlap

Chetan Puttagunta added that AI is accelerating this issue. As the cost of building software approaches zero, founders become more ambitious and aim to claim broader market 'surface areas.' This increased ambition and reduced barriers to entry are expected to lead to more instances of portfolio companies competing directly.