Factory AI ends Chris Degnan's role, Cognition denies the allegations

Factory AI has terminated the role of Chris Degnan, who claims to have resigned and wishes to join Cognition. The leaders of Factory and Cognition are publicly clashing over allegations of information gathering. Major investors are getting involved as both startups have just announced record fundraising rounds.

Investors Speak Out as Funding Rounds Reach Record Amounts

Vinod Khosla, founder of Khosla Ventures, described Factory as a "struggling second-tier competitor" acting out of desperation. In contrast, Keith Rabois, general partner at Khosla Ventures, stated that it is unethical to interview a competitor while attending board meetings and dinners. These public statements come just weeks after both companies announced major fundraising efforts. Earlier this month, Factory revealed it had raised $200 million, bringing its valuation to $5 billion. Just days prior, Cognition reported raising over $2 billion for a valuation of $48 billion.

Factory Cuts Ties with Chris Degnan and Mentions Unfair Practices

Matan Grinberg, CEO of Factory AI, announced the termination of Chris Degnan's role as an advisor and board observer after discovering that he had been in regular contact with executives at Cognition while advising Factory on confidential matters. Grinberg stated on X that ethics seemed to be sidelined in the age of AI. He also alleged that Cognition employees had faked interviews at Factory to gain access to internal information.

Degnan's Resignation and Denials from Degnan and Cognition

Chris Degnan denied Factory's allegations and stated on X that he resigned from Factory this week, while informing Matan Grinberg of his intention to join Cognition. According to Degnan, Grinberg had offered him to consider a full-time position at Factory, which he declined. Degnan asserts that Cognition never sought information about Factory and that he would never do so. Meanwhile, Scott Wu, CEO of Cognition, disputes the accusations and rejects the notion that Cognition employees posed as candidates to gather information about Factory's products, assuring that his team would never be tasked with covertly collecting information on a competitor. Additionally, Chris Degnan advises several startups and previously served as the revenue director at Snowflake.

Coding Agents, San Francisco, and Governance Precedents

Both Factory AI and Cognition, based in San Francisco, design agents specialized in coding. Cognition has gained attention with Devin, an agent aimed at automating software engineering tasks, while Factory offers a solution that allows companies to integrate AI agents throughout the software development lifecycle. The AI-assisted coding sector aims to provide autonomous software engineers to enterprise clients. Conflicts of interest have previously led to board departures in Silicon Valley, but rarely with such public accusations: Eric Schmidt left Apple's board in 2009 as Google and Apple became direct competitors; Reid Hoffman departed from OpenAI's board in 2023 citing potential conflicts related to his investments and AI startup activities.