Your Board Adviser Just Joined Your Rival. What Did They Know?

On September 30, Matan Grinberg, the co-founder and CEO of AI coding startup Factory, posted on X that he had removed venture investor Chris Degnan from his role as a board adviser. Grinberg alleged that Degnan had shared confidential information with Cognition, the company Grinberg calls his biggest competitor.

About two hours later, Degnan announced on X and LinkedIn that he had joined Cognition as its chief revenue officer.

TechCrunch reported the story the same afternoon. Degnan, his firm, and Factory did not immediately respond to requests for comment, so the full picture is not public yet. What is public is enough to make any founder ask an uncomfortable question: if one of your advisers walked into a competitor's office tomorrow, what would they carry with them?

This piece is not about who is right in the Factory dispute. It is about the setup choices that decide how much damage a situation like this can do to a small company, and what you can put in place this week.

Here are the facts as TechCrunch reported them.

Degnan was Snowflake's first sales hire and later spent 11 years as its chief revenue officer. For the past five months he had been a partner at RPT Partners, an investor in Factory. He also served as a board adviser to Factory.

Factory is a three-year-old company whose AI agents carry out programming tasks largely on their own. It raised $200 million at a $5 billion valuation this month. Cognition, maker of the Devin coding agent, raised $2 billion at a $48 billion valuation earlier in September.

According to Grinberg, Degnan had earlier admitted to a "casual" conversation with a Cognition executive but said he had no interest in working there. Grinberg says he believed him. Then, on Monday, Degnan disclosed that he had in fact been in ongoing talks with Cognition. Grinberg removed him on Tuesday.

In his post, Grinberg wrote that for weeks Degnan had been sitting in board meetings and advising leadership while also talking with executives at the largest competitor. He added that Degnan's earlier questions about the product roadmap and "what the parity gap involves" now looked different.

Degnan's own announcement did not mention Factory. It did say that RPT and its managing partner would be working closely with him at Cognition.

In older venture cycles, firms were careful not to back direct competitors. That norm has worn thin. TechCrunch counted at least a dozen investors in OpenAI who now also back Anthropic. In hot AI categories, the same small group of investors, operators, and advisers often sits close to several rivals at once.

That makes sense from the investor side. When a market grows fast and has several credible players, spreading bets is rational. Cognition's latest round was read by many as a sign that AI coding will not be a winner-take-all market.

But it shifts more of the burden onto founders. If the people around your table also have relationships with your competitors, you cannot assume that loyalty norms will protect you. You need paperwork and habits that do.

There is also a legal angle at the larger end. The Justice Department has been probing Andreessen Horowitz over partners holding board seats at Databricks and Fivetran, which compete in data tooling. Inc. reports the question involves Section 8 of the Clayton Act, which limits the same person serving as a director of competing companies above certain size thresholds. Those thresholds will not apply to most seed-stage startups, but the probe shows that conflicts at the board level are being taken seriously.

Many first-time founders blur these roles. The difference matters when something goes wrong.

Board directors are formally elected and owe legal duties to the company, including a duty of loyalty. They vote on major decisions.

Board observers attend meetings but do not vote. Their rights usually come from an investment agreement. Their confidentiality duties come from that agreement, not from corporate law, so the wording matters a lot.

Advisers are informal by default. Unless you sign an adviser agreement, an adviser may have no written confidentiality obligation at all. Grinberg said Degnan was subject to confidentiality obligations, which suggests Factory had paperwork in place. Many early startups do not.

A simple rule: the more someone sees, the more formal their role should be. Someone who hears your quarterly numbers and roadmap in a board meeting should not be operating on a handshake.

None of these are expensive. Most take an afternoon with a template and a lawyer's quick review.

1. Sign an adviser agreement with a confidentiality clause. Spell out what counts as confidential (roadmap, pricing, customer names, financials, hiring plans) and that the duty continues after the relationship ends.
2. Add a disclosure duty. Require advisers and observers to tell you, in writing, before they start talks to join, advise, or invest in a direct competitor. Factory's story turned on a gap between a casual chat and ongoing talks. A clear duty to disclose makes that gap a breach rather than a judgment call.
3. Make adviser roles easy to end. Include a clause that lets either side end the relationship at any time, and say what happens to unvested equity when it ends.
4. Vest adviser equity over time. Standard adviser grants vest monthly over one to two years. If the relationship ends early, most of the grant never vests.
5. Keep observer rights conditional. In term sheets, ask that observer rights can be suspended if the observer has a conflict, and that observers can be excluded from sessions covering sensitive topics.

If you want a structured way to list who sits where and what each person can see, a planning tool like Foundra can help you map your cap table, advisers, and information access in one place. A shared spreadsheet works too, as long as someone keeps it current.

Paperwork helps after a problem. Information habits help before one.

Share on a need-to-know basis. A go-to-market adviser probably needs your pipeline numbers and pricing. They may not need your detailed model roadmap or the specifics of where you trail a rival.

Use a separate session for the most sensitive items. Many boards hold a short closed session with only directors. You can do the same with advisers: a general update for everyone, then a smaller group for competitive strategy.

Keep a simple log. Note what was shared with whom and when. If you ever need to assess exposure, as Grinberg said he had to, you will be glad you can answer the question.

Watch the questions, not just the answers. Grinberg pointed to questions about the roadmap and a "parity gap" that took on new meaning later. An adviser asking very specific questions about how you compare to one named rival is not proof of anything, but it is worth noticing.

If you learn that an adviser or observer has been talking with a competitor, a few steps can limit damage.

• Get the facts first. Ask directly and write down the answer. Grinberg's account hinged on a change between two conversations.
• Talk to your lawyer before you post. Public statements can carry legal risk, especially when you are describing someone else's conduct. Factory chose to go public. That choice may suit a company with a large following and a strong legal position. It may not suit yours.
• Cut access right away. Remove the person from shared drives, Slack channels, and data rooms the same day.
• List what they saw. Use your log, meeting notes, and shared folders to estimate exposure.
• Tell your other investors. Directors and major investors should hear it from you before they read it online.

Then move on. Most competitive outcomes are decided by product and customers, not by one leaked slide.

It is easy to read this story as Silicon Valley drama involving companies worth billions. But the setup problem shows up at every stage. A seed-stage founder with three advisers and one investor observer has the same exposure in miniature.

Good advisers are worth a lot. Experienced operators can open doors, sharpen pricing, and help you avoid expensive mistakes. The goal is not to keep them at arm's length. It is to make the relationship clear enough that both sides know the rules.

Grinberg called trust in board membership one of the sacred bonds of the startup world. Trust works better when it is written down.

What happened between Factory and Cognition? Factory CEO Matan Grinberg said he removed VC Chris Degnan as a board adviser, alleging he shared confidential information with Cognition. Degnan then announced he had joined Cognition as chief revenue officer. Degnan had not publicly responded to the allegations when TechCrunch published.

Do startup advisers have to keep information confidential? Only if they agree to. Directors owe legal duties to the company, but advisers usually owe only what their written agreement says. Use an adviser agreement with a confidentiality clause.

Can an investor back two competing startups? It is increasingly common in AI. Founders should ask about overlapping investments and negotiate limits on information rights where it matters.

What is the Clayton Act Section 8 issue? It limits one person serving as a director of two competing companies above certain size thresholds. The Justice Department is reviewing board seats held by Andreessen Horowitz partners under this rule.

How much equity should an adviser get? Common grants are small, often well under 1%, and vest over one to two years. Ask your lawyer for a standard template.

1. Factory CEO just accused his VC board advisor of spying for Cognition, TechCrunch, September 30, 2026
2. Cognition hits $48B valuation, signaling investors believe AI coding is far from a winner-take-all market, TechCrunch, September 8, 2026
3. With AI, investor loyalty is almost dead: at least a dozen OpenAI VCs now also back Anthropic, TechCrunch, February 23, 2026
4. DOJ's probe into Andreessen Horowitz over board seats baffles VCs, TechCrunch, August 18, 2026
5. The Justice Department Is Investigating Andreessen Horowitz. The Issue Is 2 Board Seats at Competing Data Companies, Inc.