AI Boom Strains the Venture Capital Pact Against Backing Rivals

For decades, venture capital firms adhered to an unwritten rule: avoid backing two companies that compete head-on. However, as TechCrunch first reported, partners at Benchmark acknowledged during TechCrunch Disrupt that the AI boom is straining this pact, describing the resulting conflicts as a matter of necessity.

Chetan Puttagunta noted that as the cost of building software effectively drops to zero, founders have become more ambitious in claiming a larger "surface area," increasing the likelihood that portfolio companies will run into one another. Eric Vishria added that because companies evolve and pivot quickly, conflicts are simply the reality of the current dynamic. While Peter Fenton described these conflicts as "kryptonite" and the firm's toughest problem, he emphasized that transparency remains a golden rule to ensure founders are not surprised by such developments.

Reporting from TechCrunch highlights that this tension is already evident in the market. Dozens of the same investors now back both the AI labs OpenAI and Anthropic. Additionally, Khosla Ventures backs both Cognition and Factory, two rivals building AI software-writing agents. This dual investment became a flashpoint in late September when Factory fired board observer Chris Degnan for alleged unethical conduct involving Cognition. Factory's CEO accused Degnan of discussing a role at the rival firm while privy to board discussions; Degnan denied sharing confidential information and subsequently joined Cognition as chief revenue officer. Vinod Khosla of Khosla Ventures publicly sided with Degnan, labeling Factory a "struggling second tier competitor."