Benchmark Partners Admits AI Boom Is Breaking VC Rule Against Backing Rivals
Benchmark executives stated at TechCrunch Disrupt that the traditional venture capital prohibition on funding competing firms is no longer sustainable due to rapid industry shifts.
Key points
- Benchmark partners acknowledged that the AI boom is straining the unwritten rule against backing head-on competitors.
- Factory fired board observer Chris Degnan for alleged unethical conduct involving rival Cognition, highlighting the risks of dual investments.
- Vinod Khosla Ventures backs both Factory and Cognition, illustrating how common shared investors have become in the AI sector.
Benchmark partners declared at TechCrunch Disrupt that the longstanding venture capital tradition of avoiding investments in competing companies is eroding. The firm stated that the rapid evolution of artificial intelligence startups makes it nearly impossible to maintain strict exclusivity, marking a significant shift in Silicon Valley investment norms.
Eric Vishria, a partner at Benchmark, explained that conflicts of interest are now a matter of necessity rather than preference. He noted that companies pivot quickly, making it inevitable for portfolio firms to enter each other’s territories. Vishria emphasized that while Benchmark remains committed to confidentiality, the current market dynamic forces investors to accept these overlapping relationships.
Context and Background
The tension over competing investments recently surfaced publicly involving Factory and Cognition. Factory, which builds an AI agent for writing software, terminated board observer Chris Degnan in late September. The company accused Degnan of unethical conduct related to Cognition, a direct rival known for the Devin coding agent.
Factory’s CEO alleged that Degnan discussed a potential job at Cognition while having access to confidential board-level discussions. Degnan denied sharing any proprietary information, stating he had already resigned from his advisory role. Shortly after the dispute, he announced his new position as chief revenue officer at Cognition.
Who Is Affected
Vinod Khosla publicly supported Degnan on X, criticizing Factory’s leadership and labeling the company a struggling competitor. Khosla Ventures is an investor in both Factory and Cognition, demonstrating the prevalence of shared backers. Major AI labs like OpenAI and Anthropic also share dozens of investors, further normalizing this practice.
Chetan Puttagunta, another Benchmark partner, stated that AI is accelerating the problem of conflicting interests. Vishria added that Benchmark has been fortunate to avoid such direct conflicts so far. He noted that the firm is not a product or technology expert, limiting the amount of actionable intelligence they can pass between portfolio companies.
What should you do?
Security and technology professionals should monitor how venture capital structures influence data sharing and competitive dynamics. As investors hold stakes in multiple competing firms, the risk of inadvertent information leakage increases. Professionals should verify the independence of their investors and understand the confidentiality agreements in place.
What to do and how to stay safe: Benchmark
- Review board observer agreements to ensure strict confidentiality clauses are enforced and understood by all parties involved.
- Audit data access permissions for external advisors to prevent exposure of sensitive strategic information to potential competitors.
- Monitor investor portfolios for new investments in direct rivals to assess potential conflicts of interest early.
- Establish clear internal protocols for handling discussions with board members who have ties to competing organizations.
Step-by-step guide: Prompt Injection Warning Signs: How to Spot AI Manipulation
General security guidance from the Threat Times newsroom. It is not confirmed advice from the organisations named in this story.
Frequently asked questions
Why is Benchmark changing its stance on backing rival companies?
Benchmark partners stated that the rapid evolution and pivoting of AI companies make conflicts of interest inevitable and unavoidable in the current market.
What happened between Factory and Chris Degnan?
Factory fired Degnan for alleged unethical conduct involving rival Cognition, accusing him of discussing a job there while privy to confidential board discussions.
Does Vinod Khosla Ventures back both Factory and Cognition?
Yes, Khosla Ventures is an investor in both companies, and Khosla publicly defended Degnan during the dispute between the two firms.
