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

For decades, the unspoken contract between founders and venture capitalists was simple: I give you my equity and my secrets, and you promise not to fund the guy trying to kill my business. It was a gentleman’s agreement that kept the peace in Silicon Valley. But as artificial intelligence swallows every industry, that pact is disintegrating. Even the traditionalists at Benchmark are starting to admit the old way of doing business is dying.

The End of the Conflict-Free Zone

In the past, venture firms prided themselves on being “founder-friendly” by avoiding direct conflicts of interest. If a firm backed a social media platform, they wouldn’t touch another one for years. This gave founders the breathing room to share their roadmaps without worrying that their own board members would hand those plans to a rival. It was about loyalty and focus.

However, the AI landscape has turned this logic upside down. We are no longer looking at distinct categories like “fintech” or “SaaS.” Everything is becoming an AI application. When every startup is building on the same underlying models and targeting similar efficiencies, the lines between competitors become blurred. For a firm like Benchmark, which has built its reputation on concentrated, high-conviction bets, this shift is a fundamental threat to how they operate.

The reality is that if a VC firm refuses to back more than one AI company in a specific vertical, they risk missing out on the entire generational shift. If you pass on Company B because you already funded Company A, and Company B ends up being the winner, you’ve failed your limited partners. The sheer speed of AI development means that the “winner-take-all” dynamics are more aggressive than ever, forcing VCs to hedge their bets.

Why Builders Should Be Nervous

From a founder’s perspective, this is a dangerous trend. When your lead investor has skin in your competitor’s game, your board meetings change. You start holding back. You stop being honest about your struggles because you don’t want that information leaking—even subconsciously—into the advice your VC gives to the other team.

Building a company is already lonely and difficult. Having to treat your primary financial backers like potential double agents adds a layer of friction that most early-stage startups can’t afford. Benchmark’s admission isn’t just a change in policy; it’s a warning to founders that the protection they once expected is evaporating. You are now expected to win on execution alone, with no assumption of exclusive support from your cap table.

“The pact wasn’t just about ethics; it was about focus. When VCs start backing rivals, they aren’t just spreading their risk—they are diluting their utility to the founders.”

The Structural Shift in Venture Capital

Why is this happening now? Part of it is the sheer volume of capital flowing into AI. When billions of dollars are chasing a handful of high-potential engineers, firms feel pressured to stake a claim in every possible outcome. The “Venture Pact” was a luxury of a slower era where markets were clearly defined and competitors were easy to spot.

In the current market, two companies might start in completely different sectors—say, legal tech and medical billing—but because they both use the same LLM-based reasoning engines, they eventually converge on the same set of enterprise customers. If a VC backed both, they are suddenly in a conflict they didn’t see coming. Benchmark is essentially saying they can no longer guarantee they won’t end up in that position.

This also reflects a shift in how VCs view their own value. If a firm believes their primary value is just providing the capital to compute, they don’t care about conflicts. They just want a piece of the winner. It’s a more mercenary approach to building, and it’s one that founders need to be aware of before they sign a term sheet.

Survival Strategies for Founders

If you’re a founder raising money today, you have to change your due diligence process. You can’t just look at a firm’s brand name or their past successes. You need to look at their current portfolio and their stated stance on competitive investments. Here is how I would handle this new reality:

• Define your ‘Hard No’ list: Be specific in your documents about which direct competitors a firm cannot invest in. Don’t use broad categories; list names.
• Information silos: If your VC does back a rival, demand formal protocols on how your data and updates are handled. It won’t be perfect, but it creates a paper trail.
• Focus on execution: Assume your secrets will eventually get out. The only real defense in an AI-driven market is moving faster and building a better product than the competition.

The era of the protective VC “big brother” is over. Benchmark acknowledging this is just the first domino. We are moving toward a more fragmented, more competitive, and ultimately more cutthroat environment where capital is plenty but loyalty is scarce.

The Bottom Line

The erosion of the anti-rivalry pact is a signal that venture capital is becoming a commodity business again. For builders, this means the “value-add” from your VC is likely decreasing while the risk of intellectual property leakage is increasing. If Benchmark—a firm that has historically stood for the old-school way of doing things—is signaling a shift, you can bet the rest of the industry is already there.

Don’t expect your investors to be your friends. Expect them to be stakeholders in a market. The moment your competitor looks like a better bet, the old rules won’t save you. Build accordingly.

Read the original at TechCrunch Venture →