Benchmark Says AI Is Breaking Venture Capital’s Rival Investment Pact
Benchmark says AI is making VC portfolio conflicts unavoidable, as the Factory and Cognition clash tests investor loyalty, transparency and confidentiality.
Summary
On October 16, 2026, Benchmark acknowledged that AI is straining venture capital’s decades-old pact against backing direct rivals. The firm, known for 10 to 15 year relationships with early-stage founders, still considers initial exclusivity essential, but Eric Vishria said rapid pivots make later portfolio collisions unavoidable. He pledged continued confidentiality, downplayed investors’ ability to transfer product or technical knowledge, and said Benchmark has avoided an extreme direct conflict.
Chetan Puttagunta said software-building costs are effectively approaching zero, encouraging ambitious founders to pursue entire markets and increasingly enter portfolio peers’ territory. Peter Fenton called conflicts Benchmark’s toughest problem and “kryptonite.” Positioning the firm closer to a co-founder than a public-market stock picker, he said transparency must prevent founders from being surprised or shortchanged.
The warning follows Factory’s late-September dismissal of board observer and adviser Chris Degnan for alleged unethical conduct involving Cognition, its direct rival and maker of the Devin coding agent. Factory’s CEO alleged Degnan discussed a Cognition job while privy to board-level discussions. Degnan said he had already resigned, denied sharing confidential information, then joined Cognition as chief revenue officer. Vinod Khosla defended him on X and called Factory a struggling second-tier competitor. Khosla Ventures backs both companies, while OpenAI and Anthropic share dozens of investors.
Positives
- Benchmark says exclusivity remains essential when it first backs early-stage founders.
- Eric Vishria pledged continued commitment to every founder and confidentiality for information learned through portfolio relationships.
- Peter Fenton said transparency should ensure founders are never surprised or shortchanged when portfolio conflicts emerge.
- Benchmark says it has avoided the kind of extreme direct conflict seen between Factory and Cognition.
Risks & concerns
- OpenAI and Anthropic already share dozens of investors, showing how widely the traditional venture pact has weakened.
- Factory accused Chris Degnan of discussing a Cognition job while accessing Factory’s board-level information, an allegation he disputes.
- Khosla Ventures backs both Factory and Cognition, exposing investors to conflicts when portfolio companies compete directly.
- Chetan Puttagunta expects more collisions as falling software-building costs encourage founders to pursue broader markets.
- Peter Fenton called portfolio conflicts Benchmark’s toughest problem and its “kryptonite.”