Even Benchmark thinks AI is eroding the venture pact against backing rivals

What did Benchmark actually say about AI and backing rival startups?

Benchmark partners said at TechCrunch Disrupt, reported on 15 October 2026, that AI is straining the venture norm against backing head-on competitors. They did not say they are abandoning the pact. The admission matters because Benchmark is one of the firms most associated with that rule.

Chetan Puttagunta argued that AI is pushing the cost of building software towards zero, so founders become more ambitious and more likely to collide. He called backing a direct competitor from the outset "an easy answer" (avoid it), but said overlap that develops mid-stream "happens". Peter Fenton called it the firm's toughest problem, "kryptonite". Eric Vishria said conflicts are "just the reality of the current dynamic".

Is this just Benchmark, or is the whole industry changing?

It looks industry-wide. In January 2026 Sequoia was reported to be joining Anthropic's round, which aimed to raise $25 billion or more at a $350 billion valuation, while already backing OpenAI and xAI. A WIRED analysis of PitchBook data, as reported by secondary outlets, found about 90 investors backing both OpenAI and Anthropic.

The picture is not uniform. Andreessen Horowitz (OpenAI only) and Menlo Ventures (Anthropic only) are reported holdouts. Note that the WIRED figure comes from secondary reports, so treat it as indicative rather than exact. The direction is clear, though: the old rule is now a choice, not a default.

Why should a small business owner or online founder care?

Because the people funding your market may also be funding your competitor, and the rules that protect you are shrinking. If software costs almost nothing to build, rivals appear faster, and investors with stakes in several of them will sit closer to your sensitive information than you might assume.

You do not need to be raising millions for this to apply. The same logic hits any founder who takes outside money, accepts an adviser or board observer, or shares customer and pricing data with a platform that also serves competitors. The question is always the same: who sees what, and who else do they work for?

What happens when an investor or adviser sits on both sides?

Trust breaks quickly and publicly. In late September 2026, Factory fired board observer and adviser Chris Degnan, citing "unethical conduct involving Cognition", a direct rival. Degnan said he had already resigned and denied sharing anything confidential, then joined Cognition as chief revenue officer. Khosla Ventures backs both companies.

These are contested accounts, and we should not rule on who was right. The useful lesson is that observer and adviser seats are informal, carry access to sensitive material, and are often governed by less paperwork than a full board seat.

How did one firm handle a conflict properly?

Sequoia gives a reference point. In 2020 it walked away from a $21 million investment in Finix, giving up its board seat, information rights and shares, because Finix competed with Stripe, a Sequoia portfolio company. That is what a conflict policy looks like when it is actually enforced.

It also shows the cost sits with the founder. Finix lost a backer after the deal was already under way. You want to learn an investor's position before signing, not after the money and the board seat are in place.

What should founders ask investors before signing a term sheet?

Ask about the conflict-of-interest and information-sharing policy, and about board observer and adviser rules, before you sign. Get answers in writing. Eric Vishria said Benchmark keeps founder information confidential and treats early-stage exclusivity as "really important", though "things are evolving", so assume policies change.

1. List their portfolio and mark any company that overlaps with yours, now or plausibly in 12 months.
2. Ask what happens if a portfolio company later competes with you. Who steps back, and from what?
3. Ask who can see your data: partners, associates, observers, advisers.
4. Get confidentiality and observer terms into the documents, not just a conversation.
5. Speak to founders who faced a conflict and ask how it was handled.

What is Braynex Services' view?

Our view is that you should never depend on a third party's goodwill for something that matters. Investor conflicts are one version of a pattern we see constantly: rented positions that someone else controls. A nail salon we worked with paid Fresha about 1,800 a month in commission, then moved to its own booking system at 35 a month, saving roughly 21,000 a year.

The principle carries over. Own your customer list, your bookings and your data, so no platform, adviser or backer holds leverage over you. As AI makes competitors cheaper to launch, the businesses that own their infrastructure are the ones that can change partners without losing their customers.

If you want to see where you are renting what you should own, book a free audit at braynexservices.com and we will show you what to fix first.