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Venture capital’s long-standing “one company per category” understanding is breaking down as AI startups expand into adjacent markets at unprecedented speed. A dispute involving Factory, Cognition and a shared investor shows why founders now must treat portfolio conflicts, board access and executive hiring as governance issues—not just investment terms.
The old venture pact is under pressure
For decades, many venture firms avoided investing in two startups that competed directly. The unwritten bargain made concentrated investors attractive to founders: a company received capital, introductions and a partner’s undivided support, while sensitive product, strategy and customer information stayed away from a direct rival.
AI is making that boundary difficult to maintain. Companies can add coding agents, enterprise software, search, model services or workflow automation quickly, turning yesterday’s separate categories into today’s competitive markets. Benchmark partner Eric Vishria described the problem at TechCrunch Disrupt on October 15, 2026: “The harsh reality of this world is every company is evolving very quickly.”
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What happened between Factory and Cognition
The dispute involved a board adviser and alleged misconduct
Factory, an AI coding-agent startup, removed board adviser Chris Degnan after alleging “unethical conduct involving Cognition,” its direct rival and the maker of Devin. Degnan said he had already resigned and denied sharing confidential information. He later announced that he was joining Cognition as chief revenue officer.
The public account consists of allegations and the parties’ statements; it is not an adjudicated finding that confidential information was shared. It nevertheless demonstrates how quickly a portfolio conflict can involve more than overlapping investments. Board or adviser access, an executive’s move to a rival and claims about confidential information can all become flashpoints.
One investor sat on both sides
Khosla Ventures backs both Factory and Cognition. That relationship illustrates why AI is testing the old pact: an investor can support two companies whose markets converge after the investments were made, even if they were not direct competitors at the outset.
Why AI portfolios overlap so often
AI startups frequently begin with a narrow product and then expand as models improve, distribution changes and customers ask for broader automation. A coding assistant can move toward software testing or enterprise workflow tools; a model company can add applications; an application company can build proprietary models. Investors may therefore face genuine competition without having deliberately violated a one-company-per-category policy.
The overlap is visible at the largest companies too. TechCrunch reported that OpenAI and Anthropic share dozens of investors. Shared backers can provide capital and sector expertise, but founders may worry that information from one company could influence another investment decision, hiring effort or strategic conversation.
Old pact versus the AI-era reality
| Issue | Traditional venture approach | AI-market reality |
|---|---|---|
| Portfolio overlap | Usually avoid financing direct competitors in one portfolio. | Rapid product expansion can make previously distinct companies competitors. |
| Information controls | Rely on partner judgment, confidentiality and limited access. | Must account for board seats, advisers, employees, data rooms and internal sharing. |
| Capital needs | Smaller, concentrated early-stage funds and a roughly 20% ownership target in Benchmark’s historical model. | Larger rounds and follow-on financing encourage firms to invest across stages. |
| Founder trust | Built around perceived loyalty and a long-term relationship. | Founders may value flexibility but demand explicit conflict disclosure and safeguards. |
| Conflict trigger | Usually a clear competing investment. | Can be an investment overlap, a pivot, an employee move or a board/adviser relationship. |
How venture firms can protect confidential information
There is no universally established industry rule that dictates how every firm must handle rival investments. Founders should ask what a firm actually does, rather than relying on a general promise of confidentiality.
- Partner separation: Determine whether different partners lead the competing investments and whether either partner can access the other company’s files.
- Board and adviser limits: Clarify who receives board materials, attends meetings or advises a portfolio company, and how conflicts are handled when an adviser changes jobs.
- Information barriers: Ask how the firm restricts access to data rooms, customer information, technical road maps and hiring plans.
- Disclosure: Establish when the firm will tell a founder that it is considering or has made an investment in a potential rival.
- Recusal and records: Confirm whether conflicted partners recuse themselves from decisions and whether access logs or written policies document that process.
- Employment transitions: Define what happens when a board member, adviser or investor joins a competitor, including notice, access termination and return or deletion of materials.
Why Benchmark raised a growth fund
Benchmark is a useful test case because its reputation was built on concentrated early-stage investing and long founder relationships. A TechCrunch report published June 3, 2026 said the firm closed $2 billion across two new funds: a $1.25 billion later-stage vehicle and a $750 million early-stage fund.
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The need for that flexibility is illustrated by Manus, whose $75 million round was led by Benchmark. TechCrunch reported that Manus reached $100 million in annual recurring revenue within eight months of launch. A firm that wants to support unusually fast-growing companies may need capital reserved for later rounds rather than relying only on a small early-stage fund.
More capital, however, can increase the number of situations in which a firm’s investments overlap. The growth fund solves a financing problem; it does not by itself solve the confidentiality and loyalty questions raised by rival holdings.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What founders should ask before accepting a check
- Request a current list of portfolio companies that could compete with your product now or after a foreseeable expansion.
- Ask which partners, principals and operating advisers will have access to your information.
- Get the firm’s conflict, recusal and information-barrier practices in writing.
- Define whether the firm may invest in a competitor later and what notice, consent or exclusion rights apply.
- Specify how board materials and confidential data are handled if an investor or adviser leaves for a rival.
- Revisit the discussion after major pivots, new product launches or fundraising rounds, because the competitive map can change quickly.
What this means for venture governance
The Factory-Cognition dispute does not prove that shared investors inevitably leak information. It shows instead that the old category-based promise is no longer enough for a market in which companies can become rivals rapidly. Benchmark’s position is that confidentiality and commitment to founders remain safeguards, while its expanded fund structure reflects the larger capital requirements of AI companies.
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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11For founders, the practical standard is transparency: understand where an investor’s loyalties may intersect, limit access to what is genuinely necessary and document the protections before a conflict arrives. For venture firms, avoiding obvious head-to-head bets may still be sensible, but governance must now cover pivots, hiring, board roles and information flow as well as the initial investment decision.
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