Artificial intelligence challenges venture capital non-rivalry norms

The rapid advancement of artificial intelligence is challenging long-standing unwritten rules in the venture capital industry. Traditionally, investors adhered to a pact of non-rivalry, avoiding the financing of two companies that were direct competitors to maintain loyalty and confidentiality.

Benchmark, a prominent venture capital firm, has acknowledged that this practice is becoming increasingly difficult to sustain. Partners at the firm noted that the speed of technological change and the ability for startups to pivot quickly are creating inevitable conflicts of interest within investment portfolios.

The shift is driven by the declining costs of software development, which allows founders to scale ambitions and target larger market segments more rapidly. This dynamic has led to heightened tensions, exemplified by recent friction between the AI coding startup Factory and its advisors, highlighting growing debates regarding investor transparency and founder loyalty in the AI era.