Benchmark Acknowledges AI Boom Challenges Venture Capital’s No-Competition Pact

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Benchmark partners concede that the longstanding venture capital norm against backing direct rivals is eroding amid AI’s rapid expansion, with overlapping investments and founder ambitions driving conflicts.

For decades, an unwritten rule has governed venture capital firms: they typically avoid investing in direct competitors to protect founders’ interests and maintain trust. However, the rapid growth and evolving dynamics of artificial intelligence (AI) are testing this norm, according to Benchmark, a leading Silicon Valley venture capital firm.

Speaking at TechCrunch Disrupt in October 2026, Benchmark’s partners openly discussed how the AI boom has strained the traditional pact against backing rival startups. Eric Vishria, a Benchmark partner, acknowledged that startups today pivot quickly, causing overlaps and inevitable conflicts in portfolios. He emphasized that while exclusivity remains critical at early stages, the current environment forces firms to navigate more complex competitive relationships.

Benchmark highlighted a recent example involving Factory and Cognition, two startups developing AI coding agents. Factory accused Chris Degnan, its board observer and adviser, of unethical conduct related to Cognition, a direct competitor. Degnan denied the allegations and subsequently joined Cognition as chief revenue officer. Notably, both companies share investor support from Vinod Khosla’s venture firm, which sparked public debate over the conflict.

Chetan Puttagunta from Benchmark noted that AI lowers software development costs significantly, fueling founders’ ambitions to claim overlapping market spaces. This heightens the probability of portfolio companies entering each other’s territory over time, even if they did not start as direct competitors.

Partner Peter Fenton described the firm’s position along a spectrum of investor involvement—Benchmark aligns closer to the co-founder end, emphasizing transparency and founder trust. Conflicts are deemed “kryptonite,” and Benchmark commits to openness to ensure no founder feels disadvantaged by overlapping investments.

While Benchmark stops short of declaring the traditional no-competition pact obsolete, its candid admission signals shifting venture capital dynamics in the AI era. As firms continue to back multiple startups with intersecting ambitions, founders and investors alike may need to recalibrate expectations about competition and collaboration within portfolios.

The scenario underscores how AI’s rapid evolution compels venture capitalists to balance loyalty with pragmatic investment strategies amid increasingly entangled competitive landscapes.