Two prominent AI startups based in San Francisco, Factory AI and Cognition, are entangled in a public dispute following the exit of Chris Degnan, a former board observer and advisor at Factory, who is set to join Cognition as its new chief revenue officer.
On Wednesday, Factory's CEO Matan Grinberg shared insights on X regarding the termination of Degnan's position at Factory. This decision came after the company discovered that Degnan had been engaged in ongoing discussions with executives at Cognition while simultaneously providing confidential advice to Factory.
The conflict underscores the fierce competition in the AI coding sector, where both emerging startups and established tech giants are working diligently to develop autonomous coding tools for enterprise solutions. Cognition is recognized for its AI agent named Devin, which automates various software engineering tasks, whereas Factory offers solutions that assist organizations in implementing AI-driven agents throughout the software development process.
Grinberg expressed his concerns about ethical standards in the AI industry, stating on X, "It feels as though ethics is being thrown out of the window in the AI era." He accused Degnan of collaborating with Cognition while actively participating in Factory's board meetings, alleging that Cognition’s team orchestrated fake interviews with Factory to gain insider knowledge.
In response, Degnan, who has served as an advisor to various startups and was previously the chief revenue officer of Snowflake, refuted Grinberg’s claims. He confirmed his resignation from Factory this week and clarified that he had informed Grinberg of his transition to Cognition. Degnan mentioned that Grinberg had proposed a full-time role at Factory, which he chose to decline.
"Cognition has never requested information about Factory, nor would I consider sharing it," Degnan asserted in his X post.
Cognition's CEO, Scott Wu, also countered Grinberg's accusations, stating that his company does not condone any unethical practices, including soliciting information about competitors. "We would never ask our engineers or anyone on our team to collect info about any competitor under-the-table," Wu stated on X.
This conflict arises shortly after both companies celebrated significant fundraising successes that demonstrate growing investor interest in AI coding tools. Factory recently announced a fundraising round of $200 million, bringing its valuation to $5 billion, while Cognition secured over $2 billion shortly before, raising its valuation to $48 billion.
Adding to the drama, Vinod Khosla, founder of Khosla Ventures—which has previously invested in Cognition and led Factory's last funding round—publicly referred to Factory as a "struggling second tier competitor" acting out of desperation on X. This statement drew a sharp response from Keith Rabois, managing director at Khosla Ventures, who sided with Factory, declaring that interviewing at a competitor while being involved in board activities is inherently unethical.
While competitive tensions leading to board exits are not uncommon in Silicon Valley, the public nature of these accusations is relatively rare. Notable past instances include Eric Schmidt’s resignation from Apple's board in 2009 amid increasing competition with Google, and Reid Hoffman stepping down from OpenAI's board in 2023 due to potential conflicts arising from his investments and AI ventures.
