For decades, an unwritten rule in the venture capital industry has been that one institution will not support two companies that are in direct competition at the same time. However, partners from Benchmark frankly stated at the TechCrunch Disrupt conference earlier this week that the current AI craze is putting this rule under pressure.

This rule has actually been teetering on the brink for some time. Currently, the two large labs, OpenAI and Anthropic, share dozens of the same investors. In late September, the startup Factory, which developed the AI software coding proxy, announced the dismissal of board observer and advisor Chris Degnan, citing "unethical conduct involving Cognition" against its direct competitor, Devin, the developer of the coding proxy. The CEO of Factory alleged that Degnan, while aware of discussions at the board level, also mentioned the possibility of working for Cognition. Degnan stated that he had resigned and denied sharing any confidential information. Shortly afterward, he announced he would join Cognition as Chief Revenue Officer. Prominent investor Vinod Khosla sided with Degnan on X, criticizing the CEO of Factory and calling the company "a struggling second-tier competitor." Khosla Ventures invested in both companies.

Even Benchmark – an institution whose reputation is built on a partnership with its founder that has lasted for 10 to 15 years from the very beginning – indicates that the old rules can no longer be taken for granted. When Disrupt was asked on the spot whether they still adhere to the unwritten rule of not investing in competitors as portfolio companies continue to expand into each other's territories, Benchmark partners described this conflict as a necessity, rather than a preference.

Eric Vishria said, "The cruel reality of this world is that every company is evolving very rapidly." He stated that companies will shift and change, "You will encounter conflicts, and that is the current dynamic reality."

Vishria indicates that Benchmark will continue to keep its promises to each founder and maintain confidentiality about the information obtained; he also downplayed the extent of information that venture capital can convey: 'We are not product or technology experts.' It seems he is referring to the dispute between Factory and Cognition, and stated that Benchmark is very lucky not to have gotten involved in 'that kind of crazy direct conflict.' He said that at the very early stages favored by Benchmark, exclusivity was still 'very important.' 'But things are changing, there's no doubt about that.'

Chetan Puttagunta indicates that AI is accelerating this issue. He said that as the cost of building software “virtually approaches zero,” founders become “extremely ambitious.” Because they now see a “coverage area” and hope to capture it all, he continued, “This situation is likely to happen more often, and you will start to come into contact with each other.”

He distinguishes between the initial situation of facing direct competitors and the later scenario where the portfolio companies gradually expanded and entered the territory of another company. The former is “a simple answer,” he says; the latter, however, is “something that will happen.”

Peter Fenton refers to this issue as "Kryptonite," which is also the most challenging problem for the company. He described a spectrum of relationships between investors and the companies they invest in: on one end are co-founders who would not engage in activities that could compete with their own companies; on the other end are investors in the public market who can hold shares in multiple competitors, as their role is merely to allocate capital and not to shape the development of any single company. Fenton says that Benchmark leans more towards the co-founder side and views transparency as a golden rule. "There should be no surprises after the fact," he added. If a conflict does arise, founders should never feel that they have been at a disadvantage.

Benchmark has not declared that this unwritten understanding is dead. But at the same time, when an institution known for its loyalty is saying that a conflict is coming, the founder may have reason to wonder who else would be so straightforward about it.