For decades, venture capital firms have adhered to a simple rule: don’t back two rivals. But the AI boom is testing that unwritten pact, as firms like OpenAI and Anthropic share investors, and board observers like Chris Degnan switch loyalties mid-dispute.

The conflict was starkly highlighted when Factory fired Degnan, alleging unethical behaviour, while Khosla Ventures, a backer of both Factory and its rival Cognition, sided with Degnan, calling the CEO of Factory ‘a struggling second tier competitor’.

Despite this, Benchmark, a VC known for long-term partnerships, acknowledged that the old rule is no longer reliable. Eric Vishria, a partner at Benchmark, said, “The harsh reality of this world is every company is evolving very quickly.” He added that while Benchmark remains committed to each founder, conflicts are becoming more frequent as the cost of building software falls and founders’ ambitions grow.

Chetan Puttagunta, another Benchmark partner, highlighted that the issue is being exacerbated by AI, saying, “The surface area is now so much bigger that it’s probably going to happen more, where you start to run into each other.”

However, Peter Fenton, a managing director at Benchmark, noted that while conflicts are increasing, the firm is still committed to transparency and treating conflicts as a challenge to be managed rather than avoided. He described the issue as “kryptonite” for Benchmark, but one that they are determined to navigate.