The AI Boom Is Breaking the Old Rules of Venture Capital

The Crisis of Traditional Principles

For decades, an informal agreement defined the venture capital world: investment firms should not fund direct competitors. However, the current artificial intelligence boom has put this rule to a serious test. Partners at the prominent investment firm Benchmark have openly stated that maintaining this principle in today's dynamic environment is now nearly impossible.

Why Conflicts Arise

According to Benchmark partner Eric Vishria, the problem lies in the rapid evolution of companies. Startups constantly pivot, change their products, and frequently end up in niches where other companies in an investor's portfolio already operate. Vishria notes that this is not a choice, but an unavoidable reality.

The issue is exacerbated by the fact that the cost of building software has dropped sharply, fueling the ambitions of entrepreneurs. Chetan Puttagunta explains that founders are striving to capture as much market share as possible, making collisions inevitable. As a result, investors often find themselves in situations where their portfolio companies turn into direct competitors over time.

Ethical Dilemmas and Transparency

The severity of this issue is highlighted by a recent scandal between startups Factory and Cognition. Factory dismissed a board advisor, alleging that they were sharing confidential information with a direct competitor. This incident has served as a warning signal for the industry.

Benchmark partner Peter Fenton refers to this problem as "kryptonite." He notes that the firm strives to maintain maximum transparency to ensure no founder feels deceived. However, Fenton admits that this remains the firm's most difficult challenge.

What Lies Ahead

Benchmark has not yet declared the rule against funding competitors fully abolished, especially at the early stages where exclusivity remains important. Nevertheless, their candid admission that "the rules are changing" speaks volumes.

For founders and investors, this trend serves as an important lesson. In a global market where boundaries between companies are becoming blurred, transparency and the protection of confidentiality are more critical than ever. This shift in venture capital may influence how startups attract funding and the demands they place on their investors.