Neutrality pact shatters as investment funds are forced to finance competitors in the programming agent race

The unwritten pact that has governed Silicon Valley for decades has collapsed, and the commitment of venture capital funds not to finance companies that compete head-to-head has become a burden that the rapid AI boom cannot bear. Speaking to the audience of the Tech Crunch Disrupt conference, the leadership of Benchmark, one of the most established venture firms built on close founder partnerships for a full term or more, did not hesitate to acknowledge that the rule is no longer an absolute standard; competition between companies within the same portfolio has become a necessity, not a choice.

The public shift followed silent tensions that peaked when investors found themselves in boardrooms of rival entities, where the giants OpenAI and Anthropic shared dozens of shareholders. The actual explosion occurred at the end of September when Factory, a company that builds intelligent agents for software development, announced the dismissal of its board observer and advisor Chris Degnan on the grounds of unprofessional conduct with its direct competitor Cognition, developer of the well-known programming agent Devine. Although Degnan denied the allegation and officially moved to become revenue director at Cognition, and investor Vinod Khusla promptly attacked Factory publicly, labeling it a failing competitor, the Khusla Ventures fund holds investment stakes in both competing companies simultaneously.

The accelerating pace of AI and the approaching near-zero cost of building software are the primary drivers of this erosion in investment norms.Benchmark partner Shitan Botagonta explains that lower development costs drive founders toward aggressive ambitions, prompting them to aim for the entire available software market, which inevitably leads to clashes among portfolio entities later, even if their domains differ at the seed stage. Meanwhile, partner Eric Fischria describes this reality as a deterministic dynamic that forces conflicts due to rapid shifts in business models, while partner Peter Vinton characterizes the issue as a super-cryptonite material and the toughest dilemma facing a fund that treats absolute transparency as a golden rule that prevents a founder’s surprise after the fact.

What California markets are experiencing is redrawing the rules of the game for boards and tech teams across the Gulf, Egypt, and the broader Arab region.Executive tech leaders and heads of digital transformation in banks and regional institutions face a new reality when contracting with self-coding tools and agents; digital security and the confidentiality of development plans are no longer guaranteed merely by signing non-disclosure agreements, if the fund that owns the platform also holds access keys to a competitor’s code and sits on its board. Conversely, Arab founders and entrepreneurs negotiating early-stage financing must abandon the illusion of traditional exclusivity; the investment fund that signs with them today may lead, tomorrow, a round for their direct competitor as the first horizontal expansion of an AI agent into their sector.

Benchmark has not formally declared the death of the neutrality pact, but its public acknowledgment of forthcoming conflicts sends a decisive message to the entire tech ecosystem. Remaining neutral in a world where intelligent agents expand faster than business plans has become a luxury that even the most loyal investors cannot afford.