Benchmark Says AI Is Breaking VC's No-Rivals Rule. The Factory Feud Shows Why.

Benchmark, the venture firm best known for long, exclusive bets on early-stage founders, said this week that the industry's oldest courtesy is cracking: a VC shouldn't back two companies that compete head-on. Speaking at TechCrunch Disrupt 2026 in San Francisco, partners Eric Vishria, Chetan Puttagunta and Peter Fenton described portfolio conflicts as a matter of necessity, not preference, because AI startups now pivot and expand so fast that they collide with each other. The admission lands two weeks after the clearest example yet: a public fight between AI coding startups Factory and Cognition in which Khosla Ventures, an investor in both, ended up on both sides.

What Benchmark Actually Said

Nobody at Benchmark declared the rule dead. What they said was more uncomfortable than that: they can't guarantee it anymore.

"The harsh reality of this world is every company is evolving very quickly," Vishria said, adding that conflicts are "just the reality of the current dynamic." He said Benchmark stays committed to each founder and keeps what it learns confidential, and that exclusivity is still "really important" at the very early stage where the firm invests.

Puttagunta put the blame squarely on AI. As the cost of building software "effectively goes to zero," he said, founders see a bigger surface area and want to claim all of it, so portfolio companies will keep running into each other. He drew a line between backing a direct competitor from day one, which he called an easy no, and watching two existing portfolio companies drift onto the same turf.

Fenton called the problem "kryptonite," the firm's toughest issue. His frame is a spectrum: a co-founder would never work on a competing company, while a public-market stock picker can own several rivals because they are only allocating capital. Benchmark wants to sit near the co-founder end, he said, with transparency as the golden rule.

All three quotes come from TechCrunch's report on the Disrupt session; Benchmark hasn't put out a separate statement.

The Feud That Made the Point

The case everyone in the room had in mind broke on September 30. Factory CEO Matan Grinberg said on X that he had cut ties with Chris Degnan, a go-to-market adviser to Factory for about a year, over "unethical conduct involving Cognition," the maker of the Devin coding agent and Factory's biggest rival. Grinberg said Degnan had called his talks with Cognition "casual" before disclosing they were ongoing, and that Degnan's earlier questions about the product roadmap now looked different. He said he had email receipts but didn't publish them.

Degnan, Snowflake's first sales hire and later its chief revenue officer, told a different story. He said he resigned rather than being fired, declined a full-time offer from Factory, hadn't attended a Factory board meeting in weeks before he first spoke with Cognition, and never shared confidential information. Cognition then named him chief revenue officer. Cognition's chief legal officer, Paul Grewal, told Bloomberg the company hired Degnan for his sales leadership and had never tried to get confidential information on Factory.

The investor layer is where it got strange. Degnan had spent the previous five months as a partner at RPT Partners, which invests in Factory. Khosla Ventures backs both companies, and it split in public. Founder Vinod Khosla sided with Degnan on X and called Factory "a struggling second tier competitor." His own partner, Keith Rabois, wrote that it is "unethical per se" to interview at a competitor while attending board meetings. On Factory's side, Sequoia's Shaun Maguire posted that Factory was "sitting on a nuclear weapon" against Cognition.

Why AI Makes Overlap Inevitable

The money explains the pressure. In September, Factory raised $200 million at a $5 billion valuation from backers including Khosla Ventures, Blackstone, Sequoia and Insight Partners. Cognition raised $2 billion at a $48 billion valuation the same month, up from $26 billion in its previous round, Bloomberg reported. When one category produces two companies worth that much, a firm that sat out either one would have missed a historic return.

The same logic already runs through the top of the market. TechCrunch notes that OpenAI and Anthropic now share dozens of the same investors, and the bidding wars behind rounds like Ramp's reported $60 billion valuation and OpenAI's trillion-dollar IPO talk are run by a small set of crossover funds that can't avoid owning overlapping bets. Puttagunta's point adds a second force: when building software gets cheap, product boundaries stop holding. Coding agents turn into platforms, platforms buy tooling, and yesterday's adjacent company becomes today's competitor, the same pattern behind Anthropic buying the SDK maker its rivals relied on.

What Founders Should Do Now

The practical takeaway is that founders can no longer assume exclusivity comes with a check. If a lead investor also owns a company that could plausibly expand into your market, that conversation belongs before the term sheet, not after an ugly X thread. Fenton's own standard, "There shouldn't be the surprise after the fact," is a reasonable one to hold any firm to.

Board access is the other pressure point. The Factory dispute wasn't really about who invested in whom; it was about what an adviser with board-level visibility could carry across the street. Tighter information rights, clear rules for advisers and observers, and written conflict disclosures are cheap compared with litigating trust in public.

Benchmark deserves some credit for saying the quiet part on stage. A firm whose brand is loyalty just told founders conflicts are coming. The firms that don't say it are the ones to ask about.

Sources

• TechCrunch: Even Benchmark thinks AI is eroding the venture pact against backing rivals
• TechCrunch: Factory CEO just accused his VC board adviser of spying for Cognition
• The Next Web: Factory and Cognition bosses clash over adviser's exit, Bloomberg reports
• Vinod Khosla on X