Follow the Money Friday: The Death of the Venture Loyalty Pact

**Opinion:** For decades, the venture capital industry operated under a gentleman's agreement: you don't back two companies competing head-on. It was the ultimate sign of conviction. But as reported by TechCrunch, as we watch the AI bubble expand, that discipline is evaporating. When firms like Benchmark—whose entire brand is built on deep, long-term founder loyalty—start framing these conflicts as an inevitable 'reality,' it tells me the industry has moved from conviction to desperation. In a market this volatile, VCs aren't betting on a winner; they are hedging their bets so they don't end up with nothing. The 'no rivals' rule didn't just break; it was discarded for the sake of the P&L.

According to reporting from TechCrunch, the strain on this unwritten rule is becoming public. At the TechCrunch Disrupt event, partners from Benchmark acknowledged that the pact against backing rivals is under significant pressure. While the firm still values exclusivity at the earliest stages, partners Eric Vishria and Chetan Puttagunta described the emergence of conflicts as a necessity of the current dynamic.

Vishria noted that because companies are evolving so rapidly and pivoting, conflicts are simply a reality of the modern landscape. Puttagunta added that AI is accelerating this trend; as the cost of building software effectively drops to zero, founders become more ambitious and attempt to claim a larger "surface area," making it more likely that portfolio companies will eventually run into one another.

This erosion of loyalty is already visible in the industry's biggest players. TechCrunch reports that the leading AI labs, OpenAI and Anthropic, already share dozens of the same investors.

More visceral is the recent clash involving Khosla Ventures. TechCrunch reports that Factory, a startup creating AI software-writing agents, fired board observer and adviser Chris Degnan for "unethical conduct" involving its direct rival, Cognition (the maker of the Devin coding agent). Factory's CEO alleged Degnan discussed a role at Cognition while privy to board discussions. Degnan denied sharing confidential information and subsequently joined Cognition as chief revenue officer. Vinod Khosla of Khosla Ventures, which backs both companies, publicly sided with Degnan on X, dismissing Factory as a "struggling second tier competitor."

Benchmark partner Peter Fenton described these conflicts as "kryptonite" and the firm's most difficult challenge. Fenton compared the investor's role to a spectrum: on one end is the co-founder who would never support a competitor, and on the other is the public-market stock picker who allocates capital across rivals without shaping the companies. While Fenton claims Benchmark sits closer to the co-founder end and prioritizes transparency to avoid surprises, the admission that the old rules are shifting is a stark signal to founders about the current state of VC loyalty.