TheChek News Flow

Brussels to free up billions of euros for defence from EU budget

Policy shift will allow the bloc’s capitals to redirect ‘cohesion funds’ amid Ukraine conflict and Trump victory

Brussels is changing its spending policies to potentially redirect tens of billions of euros to defence and security, as Russia’s war in Ukraine and Donald Trump’s return to the White House heap pressure on the EU to boost investment.

The policy shift would apply to about a third of the bloc’s common budget, or some €392bn from 2021 to 2027, money that is aimed at reducing economic inequality between EU countries.

Only about 5 per cent of these so-called cohesion funds has been spent to date, with the biggest beneficiaries, including Poland, Italy and Spain, spending even less.

Under existing rules, these funds cannot be used to purchase defence equipment or directly fund the military, but investment in so-called dual-use products such as drones is allowed.

Capitals of member states will be told in coming weeks that they will now have more flexibility under the rules to allocate cohesion funds to support their defence industries and military mobility projects such as reinforcing roads and bridges to allow the safe passage of tanks, according to EU officials.

This will include permitting funding for boosting the production of weapons and ammunition, though the ban on using EU funds to purchase those weapons will remain.

A spokesperson for the European Commission said cohesion funds could be used for the defence industry as long as they contributed to the “overall mission to enhance regional development”, including military mobility.

Germany is the linchpin for European military mobility due to its location but its transport infrastructure is in poor shape. The Berlin economy ministry estimated in 2022 that the country needed to spend €165bn urgently on roads, rails and bridges. Germany is due to receive €39bn in cohesion funds through to 2027.

The move will also be welcomed by states on the EU’s eastern border, which have ramped up military spending since Russia’s full-scale invasion of Ukraine, while some suffered a drop in foreign investment.

“We have to invest into military mobility projects which are costly . . . [and] important not only to one country, but also the whole region,” said Gintarė Skaistė, Lithuania’s finance minister.

Trump warned Nato allies earlier this year that as president he would encourage Russia to do “whatever the hell they want” if alliance members failed to meet their defence spending target.

Poland in particular has been piling pressure on the commission to spend more on defence. Warsaw spent 4.1 per cent of its GDP on the military this year, double the Nato target, and it plans to reach 4.7 per cent in 2025.

EU countries have spent relatively little of their cohesion funds so far because they have instead prioritised billions in so-called recovery funds made available in the wake of the Covid-19 pandemic. These expire in 2026.

Poland has typically spent a relatively large amount of its cohesion funds compared to its peers, but has been a laggard in the current budget cycle because it could not access funds that were frozen by Brussels in 2022 amid concerns over the rule of law.

The money only started flowing after Prime Minister Donald Tusk took office in December last year.

The shift in policy to bolster defence-related spending will also be welcomed by net payers into the EU budget, such as Germany, the Netherlands and Sweden, which see the use of existing funds as preferable to issuing joint debt or providing more EU funding.

Shifting money away from other priorities such as green and digital infrastructure to the defence industry would require the commission’s approval, one official said.

“The fact that we should pay more attention to defence does not mean that we should forget about the green transition or cohesion,” Piotr Serafin, the incoming EU budget commissioner, said during his confirmation hearing last week.

Regional governments have mixed feelings about the push towards defence spending, worrying that the shift could come at the expense of regional development, and imply a centralisation of funding away from local authorities.

But at the same time, they welcomed support for projects that fail to attract private capital.

“In my region, I have a training field for troops that needs to be connected with an airport,” said Olgierd Geblewicz, president of Poland’s West Pomerania region. “If it is the regions who will decide . . . with local acceptance it will be possible.”

The shift in policy is a preamble to a stronger focus on defence in the next EU budget starting in 2028, which will be negotiated from next year. A recent report for the commission by former Finnish president Sauli Niinistö advocated reserving 20 per cent of that for defence.

“We are under stronger pressure than others, we need more military presence. Our defence expenditure is high, the next European budget should take that into account,” Jürgen Ligi, finance minister of the Baltic state of Estonia, told the FT.

Why China is betting on local governments to spur the economy

Fiscal package falls short of market hopes as Beijing braces for Trump tariffs

Chinese authorities have unveiled their biggest fiscal package in recent years, in their latest effort to jump-start economic growth as they battle trade tensions and the threat of sweeping new tariffs from Donald Trump.

The highly anticipated Rmb10tn ($1.4tn) plan, which followed a monetary policy package in September, was focused on clearing up billions of dollars in local government debt that has dragged on growth. But it stopped short of supporting household spending and tackling a property sector slowdown, as some investors had hoped.

The Hong Kong-listed Hang Seng China Enterprises index slipped 1.4 per cent on Monday.

Many experts are questioning whether Beijing’s efforts will be enough to give a decisive boost to the world’s second-largest economy, especially if Chinese exports face higher tariffs after Trump takes office next year, and whether the latest package will even resolve local governments’ debt.

What is the latest stimulus plan?

China’s finance minister Lan Fo’an on Friday announced a sweeping plan to restructure local governments’ “hidden” debt, much of which is held by off-balance sheet finance vehicles that regional administrations use to fund infrastructure projects.

Local governments will be authorised to issue Rmb6tn in new bonds over three years under the programme, and to reallocate Rmb4tn from previously announced bonds over the next five years.

Lan said officials were “studying” additional steps to recapitalise big banks, buy up unfinished properties and strengthen consumption.

Why did the package focus on local government debt?

Local governments are one of the engines of China’s economy and are crucial providers of capital investment for regional growth, thanks to the central government’s reluctance to take on debt.

In many regions, authorities turned to local government finance vehicles (LGFVs) to fund investments in areas such as property, infrastructure, technology and financial assets.

But many of these investments are high risk and low return, such as in Guizhou province, which went on a bridge-building spree. As China’s years-long property sector slowdown deepened, the burden of LGFV debt became unsustainable, undermining government finances and dragging on growth.

Local governments, in turn, have been forced to hit private business with fines and extra taxes, hurting investor confidence.

How will the debt restructuring work?

The debt restructuring programme will allow local governments to take these hidden LGFV debts onto their balance sheets, converting them into longer-maturity, lower interest liabilities.

Reallocating the debts is expected to save Rmb600bn in interest payments over five years. 

This debt swap — combined with other local government debt repayment plans — will reduce the LGFV hidden debt pile to about Rmb2tn by 2028, according to the finance ministry.

Will it be enough?

In a sign of the lack of clarity around off-balance sheet debt, independent analysts have estimated that LGFVs’ liabilities could be as high as Rmb60tn — far above Lan’s estimate of about Rmb14tn.

Ren Tao, senior researcher at Shanghai Institution for Finance and Development, noted that local governments would also remain heavily leveraged, as the central government was not taking on any of the repayment burden. “The pressure of hidden debts is expected to remain a challenge in some provinces,” he said.

The IMF warned last year that one-third of LGFVs were “commercially nonviable”, generating insufficient revenue to cover their interest payments for the past three years. It called for debt restructuring to go deeper, including “writedowns and asset sales through the use of insolvency frameworks”.

“Beijing needs to introduce fiscal reforms to discipline local governments in their borrowing and impose harder budget constraints,” Ting Lu, chief China economist at Nomura, wrote.

Why did Beijing not offer more direct stimulus?

Beijing argues that by restoring the health of local governments, it is laying the foundations for future healthy growth.

But analysts say the debt swaps do not amount to stimulus, because they added little spending to the economy. Investors had hoped policymakers would sweeten the debt resolution plan by buying up some of China’s millions of unsold homes or directly supporting households. 

“The lack of pro-growth measures, especially consumer stimulus, was a disappointment,” Citi analysts wrote in a note.

Many economists believe Beijing may be reserving fiscal “dry powder” for when Trump’s tariff plans become clearer.

“It’s hard to lay out any measures to buffer the economy before you know what the tariff hit will be,” said Jacqueline Rong, China economist with BNP Paribas. “All expansionary policies will need to be on a wait-and-see basis.”

Home services marketplace launched in the dotcom era has seen plumbers and roofers cut ad spending

Barry Diller’s IAC is exploring a spin-off of home services marketplace Angi, as the billionaire magnate’s holding company looks to get back to basics with a focus on online media and gaming.

IAC said on Monday it was weighing the possibility of spinning off its 85 per cent stake in Angi, a nearly 30-year old brand launched in the dotcom era as Angie’s List to connect customers with plumbers, roofers and other tradespeople.

The group was also open to selling other assets, chief executive Joey Levin said in an interview.

The potential deal would continue IAC’s evolution into a smaller, leaner company following a flurry of spin-offs of companies such as the dating app group Match and the online video platform Vimeo. 

The separately listed Angi, formed after IAC merged Angie’s List with HomeAdvisor seven years ago and rebranded two years ago, makes up about a third of the digital media holding company’s revenue.

The online marketplace has suffered as tradespeople have cut back on advertising spending, cutting its market value by almost 85 per cent since the peak of the pandemic to $1.3bn. Angi’s revenue fell 16 per cent to $296mn in the third quarter, it reported on Monday. 

But industry analysts said Angi, which appointed longtime executive Jeff Kip as chief executive in April, has succeeded in shifting its focus to profitability over growth. Angi reported net income of $35.2mn in the third quarter and earnings before tax and depreciation were up 27 per cent on an adjusted basis over the same period of last year.

A spin-off of Angi, IAC’s second attempt in five years, could come as soon as the second quarter. Digital media publisher Dotdash Meredith and online gaming and hospitality-focused MGM Resorts would remain at the core of IAC in the event of a spin, according to a letter to shareholders seen by the Financial Times.

“We have spun off businesses when they are growing revenue tremendously, and we have spun off businesses when they are shrinking,” Levin said in an interview. “I do think our desire at IAC is to focus on other businesses right now.” 

IAC, chaired by Diller, owns majority and minority stakes in dozens of digital media businesses, from a stake in car sharing platform Turo to full ownership of digital media outlet The Daily Beast.

On Halloween, a Reddit user asked OpenAI CEO Sam Altman whether “GPT-5” was coming, as well as the full version of the company’s o1 reasoning model—a preview version of which went on sale seven weeks ago.

In other words, when would the public see the company’s next flagship large language model?

Altman answered, “we are prioritizing shipping o1 and its successors,” and added that limited computing resources meant that it was difficult to launch too many things in parallel.

We didn’t think much of it at the time. But now we have a better understanding of Altman’s comment—and why he is focused on launching an o-branded reasoning model rather than another version of GPT. That acronym stands for a generative pretrained transformer model (aka an LLM) that became the bedrock of ChatGPT and most other generative artificial intelligence products.

The reason? The pace of improvement of GPTs is slowing down, as we reported Saturday, with new details about the development of Orion, the next big GPT. And now that OpenAI has the ability to bake reasoning into GPTs such as Orion, it may start branding these models as part of the “o” family.

The prior flagship LLM, GPT-4, had publicly launched in early 2023 and sent shockwaves around the tech industry because of how much better it was than its predecessor. It also sparked a wave of concerns from artificial intelligence safety advocates—Elon Musk included—over the pace at which the technology was improving.

Orion is better than GPT-4, but the jump in quality pales in comparison with the one we saw between GPT-3 and GPT-4. OpenAI may even move away from its “GPT” naming convention for LLMs, which started in 2018 with the release of GPT-1.

So when Altman wrote “o1 and its successors,” he could mean that Orion will be fused with reasoning and branded as “o2.”

As One AI Scaling Law Fades, Another Takes Its Place

Let’s get back to the GPT slowdown. It may be tempting to pounce on our report and wonder if AI scaling laws—the idea that using more data and compute power in the LLM pretraining process produces better and better AI capabilities—aren’t everything they were cracked up to be. We’re wondering that too, as are Ben Horowitz and Marc Andreessen, who hold stakes in AI firms including OpenAI and recently talked about the issue on a podcast.

But that might not be the best way to think about it. The traditional AI scaling law doesn’t just mean that more data and power during the LLM training process is all you need to get a better outcome. OpenAI researchers did all kinds of other interesting things to help GPT-4 be massively better than GPT-3, such as introducing a concept known as model sparsity (read more about that here).

And making grand pronouncements about the trajectory of AI because of the GPT slowdown would ignore the company’s recent reasoning model—which stems from the now-infamous Q* breakthrough we told you about a year ago, later named Strawberry.

The reasoning paradigm could make up for the slowing improvement in pretraining results—in essence, it could represent a new type of AI scaling law. Reasoning models’ performance gets better the more time they have to think about a question before giving an answer, OpenAI has repeatedly said. It’s known as log-linear compute scaling.

Given how relatively few developers are using o1, in part because of the high price OpenAI charges for it, we can’t tell how true that is. But it’s the trillion-dollar question that’s now in front of us.

Some of you might also be thinking: if GPTs aren’t accelerating, does that mean the doomers are wrong and AI won’t enter into a so-called recursive self-improvement loop in which it figures out how to make the next, better version of itself over and over again (and then maybe conquer us all)? Andreessen, for his part, thinks the apparent plateau means such fears seem unfounded, for now.

Last but certainly not least, the data center wonks must be wondering if these shifts mean that OpenAI’s dream of a $100 billion supercomputing cluster is waning. We can’t know for sure, but all the major AI developers are full steam ahead on much-smaller-but-still-wildly-expensive clusters. (Read more about OpenAI’s upcoming cluster.)

That may be because despite the deceleration of improvements to pretrained LLMs, any improvements may well be worth the added data center cost if the resulting pretrained LLM is marginally better than those of rivals. As we point out in the piece, the better the LLM you have, the better the result you get after baking a reasoning model into the LLM. And AI developers may find large clusters particularly useful for improving these models after they are pretrained, to handle reinforcement learning during the post-training phase, and to update or tweak a model after that.

A string of busted deals has hit the venerable hedge-fund industry strategy of merger arbitrage

It has been a rough year for betting on big takeovers. Now, some in the hedge-fund industry hope President-elect Donald Trump could breathe new life into the business, by giving American corporations more freedom to pursue major deals.

The optimism is already evident in surging stock prices for some companies, like Discover Financial Services DFS 3.60%increase; green up pointing triangle, that are pursuing combinations. It is part of a broader optimism across Wall Street about potentially lucrative opportunities under a second Trump term.

In recent months, numerous high-profile acquisitions have either struggled to close or failed, including a plan to unite Tapestry and Capri Holdings, the companies behind Coach and Michael Kors. The pileup has ripped through the hedge-fund world, leading to unexpected losses and several top traders losing their jobs.

Now however, the new president’s pro-business, lighter-regulation agenda “means a pro-merger environment that will embolden companies to get bigger through acquisitions; it is as simple as that,” said Orkun Kilic, a London-based arbitrager. “I am very excited for the next four years.”

A hostile deal environment has largely kept Kilic on the sidelines since December, he said, and he now expects to become more active with Trump’s election.

Trump-related euphoria quickly fed into the shares of Capital One Financial and Discover Financial, which soared on renewed bets their $35 billion merger will pass regulatory muster.

The market is assigning an 80% probability the deal closes, up from 70% before the election, according to MKP Advisors, which specializes in M&A transactions.

A gauge of so-called merger-arbitrage performance is up just 4.6% this year through October after fees, data from the hedge-fund research firm PivotalPath shows. That compares with an 8.5% rise for the firm’s broad hedge-fund industry index.

“They’re not only underneath the industry average—I think this year they might not even beat Treasurys,” said Omar Sayed, a longtime merger-arb trader who left Millennium Management earlier this year. The yield on a low-risk 10-year U.S. Treasury note is about 4.3%.

Sayed said he plans to launch his own merger arbitrage-focused firm, but will wait until conditions improve and he can deliver the kinds of returns that investors want.

Merger arbitrage was made famous by the likes of billionaire investor John Paulson—now a candidate for Treasury secretary—and Robert Rubin, a former holder of that role and Goldman Sachs executive. It appeals partly because returns aren’t usually linked to broader market moves.

But this year, dealmaking has encountered regulatory and political pushback in Europe, the U.S. and elsewhere. In the U.S., Federal Trade Commission Chair Lina Khan has taken an unusually tough stance against mergers. FTC challenges to many deals, including Tapestry’s bid for Capri, have made it riskier to bet on takeovers closing.

Further complicating matters is a drop-off in deal numbers, which hit their lowest level since 2015 in the first 10 months of this year, LSEG data shows. And higher interest rates have helped make it more expensive to use debt to boost deal returns.

Trump’s credentials as pro-merger will be tested early with his decision over the fate of Khan, the FTC chair. Many investors expect her removal from this role because of her record of challenging many deals and wariness of big tech.

This year has brought a string of busted or challenged mergers, including Amazon.com’s abortive takeover of robot-vacuum maker iRobot, and a failed $3.8 billion union between JetBlue Airways and Spirit Airlines.

This rough ride harks back to 2014 when merger arbs suffered a one-day shellacking some dubbed “Arbageddon,” as two huge deals collapsed and President Barack Obama said his administration would revisit rules on tax-driven mergers.

Last month, merger investors suffered two major setbacks. The first drubbing resulted from the collapse of a bid for Hong Kong-listed China Traditional Chinese Medicine Holdings, after the $2 billion deal unexpectedly failed to win timely approval from Chinese regulators.

Days later, a U.S. judge blocked Tapestry’s bid for Capri, siding with the FTC and arguing the deal would raise prices for more-affordable handbags. The companies plan to appeal. Shares in China TCM and Capri suffered one-day drops of 35% and 49%, respectively, after the deals collapsed.

Izzy Englander’s Millennium Management ranked among China TCM’s biggest shareholders before the deal broke down, owning a more-than-5% stake worth about $135 million, filings show. Hong Kong-based Athos Capital owned more than 4%, another filing showed.

Millennium was also a shareholder in Capri, as was London-based Melqart Asset Management, FactSet data as of June shows. The firms each owned more than 2 million shares at the time.

The setbacks have left some money managers struggling to hang on to their jobs.

At least 10 merger-arb investors and analysts since April have been fired, left or are planning to leave their jobs following underperformance, according to people familiar with the matter.

Among those who have departed their roles: Ed Cooper and Laurent Pujade-Lauraine at Millennium Management, Eric Fritz at Schonfeld Strategic Advisors, Adam Schwartz at Balyasny Asset Management and Neel Gupta, who worked at Soros Fund Management.

The managers and their firms either declined to comment or couldn’t be reached for comment.

The Tapestry-Capri deal had been a popular target for merger arbs. Manuel Blanco, a portfolio manager at Maven Securities, touted the deal’s merits at a June conference. That included an option strategy to mitigate potential losses if the deal failed, and the possibility of still making money if that scenario led to a breakup of Capri, according to a copy of his presentation seen by The Wall Street Journal.

Blanco is in the process of leaving Maven. He said his departure has nothing to do with his Capri investment and is driven by his plans to set up a new fund.

Despite the changing atmosphere, there is one big deal that many traders view as a lost cause even under a Trump administration: Nippon Steel’s high-profile and controversial $14.1 billion deal for United States Steel. Trump came out against the tie-up during the campaign, amid opposition to the Japanese takeover from the United Steelworkers union and local politicians.

Latest fundraising values company at $2.75bn following one of biggest VC rounds in Latin America in recent years

Argentine fintech Ualá has raised $300mn in one of the largest fundraising rounds for a start-up in Latin America in recent years, in what libertarian President Javier Milei described as “proof” of an impending wave of tech sector growth in the notoriously tumultuous economy.

The latest fundraising takes Ualá, which launched in 2017 and now has 8mn customers and banking licences in Argentina, Mexico and Colombia, to a valuation of $2.75bn.

The round is one of the largest in the region in recent years, according to data from Dealogic, following a $500mn fundraising for cold-chain storage firm Emergent Cold LatAm in 2023. Brazilian fintech Neon Pagamentos also raised $300mn in 2022.

The round was led by Allianz X, the growth investment arm of insurer and asset manager Allianz, and also included hedge fund manager Alan Howard. Ualá is backed by the SoftBank Latin America Fund and China’s Tencent.

The move follows three years of relatively scant venture capital investment in Latin America amid higher US interest rates. 

Milei, who is 11 months into a drastic austerity and deregulation drive that has slashed Argentina’s sky-high inflation rate, said on Monday that Ualá’s fundraising was “proof that . . . Argentina has everything it needs to become a technological power”.

“We are a pressure cooker ready to boil over with potential,” he added.

Argentina has one of the largest tech industries in the region and is the birthplace of ecommerce giant MercadoLibre and software development firm Globant. The sector stands to be a big beneficiary of Milei’s plans to stabilise the macroeconomy, scrap regulation and eventually lift currency and capital controls that have been in place for nine of the past 13 years, which have deterred investment.

“This fundraising round will allow Ualá to never raise capital again and to reach full profitability in all our markets, after already achieving that in Argentina this year,” Ualá founder and chief executive Pierpaolo Barbieri told the Financial Times.

“Our goal with this round is to become the largest bank in Argentina, period,” he added. 

Ualá has grown rapidly in Argentina by capitalising on the country’s bureaucratic banking sector and large unbanked population. Almost a fifth of Argentine adults now hold a Ualá account, according to the company, which offers debit and credit cards, payment services, loans and investment products. 

The firm had quintupled its credit book in 2024, Barbieri said, as Milei’s reform drive begins to expand Argentina’s long-stunted private credit market, which has shrivelled further in recent years amid a severe economic crisis.

Argentina’s private credit market currently measures just 5 per cent of GDP compared with more than 50 per cent in Brazil and 90 per cent in Chile, Barbieri said.  

“It should at the very least, quadruple to match where it was in 2017, 2018. But then it should grow by 10 or 20 times [over] a couple of decades,” he added. “The direction of travel is very clear — if the macro stabilisation is successful.”

Broker dealer previously claimed it had been victim of ‘massive fraud’ by Michael Viney and another former employee

Howard Lutnick’s BGC Group has brought contempt of court proceedings against a former UK employee, accusing him of hiding assets after he took part in a £24mn scheme to defraud the US broker dealer.

Lawyers acting for the company told the High Court in London that tax adviser Michael Viney had breached an earlier freezing order on his assets, including by selling a property in Barcelona without disclosing it.

BGC, which is led by billionaire Lutnick — one of Donald Trump’s closest allies and co-chair of his transition team — previously claimed that it had been the victim of a “massive fraud” perpetrated by Viney and another UK employee, Xavier Alcan.

The company reached a settlement with Alcan earlier this year. Edward Levey KC, representing BGC, told the court on Monday that Alcan “defended the matter right up to the eve of trial” but the claim was then settled on terms that he pay “significant sums” to BGC.

Viney has previously admitted he was liable to pay BGC. According to the company, he was told to pay about £24mn under the terms of a court order in May 2022. It served a contempt of court application on him in June.

Levey claimed on Monday that there was “overwhelming evidence” that Viney was in breach of a court injunction.

In written submissions, he said that Viney had sold a property in Barcelona without BGC’s knowledge and also “failed to disclose” a £1.26mn investment.

The company had previously accused Viney and Alcan of diverting payments that were intended to be between BGC and other legitimate sources, mainly HMRC, to bank accounts in numerous jurisdictions.

BGC said Viney used a “trusted position” within the company to conceal 32 separate fraudulent payments, including by doctoring emails. Some of the proceeds had been used to buy properties, jewellery and other luxury items, the group claimed.

A hearing on Monday was adjourned until the new year as Viney lacked legal representation.

Viney, who appeared before the judge without counsel, was not asked for his substantive response to the contempt application. He said he was making his best efforts to secure legal aid solicitors.

In written submissions, Levey claimed that the Barcelona property had been sold for €253,800 and that the proceeds were paid into a previously undisclosed bank account. Some of the money had been recovered but a large chunk had not been, he maintained.

Levey also contended that there had been a “dissipation” of income generated from rental properties in the UK and Florida and that Viney had been “planning to get his hands” on an undisclosed investment and would have done so had BGC “not put a stop to it when it learned of its existence”.

Lutnick, who also heads Wall Street firm Cantor Fitzgerald, personally gave more than $10mn to Trump’s re-election campaign.

From self-driving cars to AI that writes enterprise software: Cogna founder raises $15M

A founder who was an early mover in the race to build autonomous vehicles has raised $15 million for his next act: a startup that claims its AI can write enterprise software on its own.

Cogna — as the U.K.-based startup is called — is led by Ben Peters, the technical co-founder of FiveAI (the self-driving startup that was acquired by Bosch in 2022). Notion Capital is leading the Series A, with Hoxton Ventures and Chalfen Ventures also participating. It comes on the heels of Cogna, founded in May 2023, raising a seed round of $4.75 million earlier this year from a number of investors, including Peters’ FiveAI co-founder Stan Boland and Herman Hauser, the founder of Acorn Software.

The focus of Cogna is the world of enterprise resource planning. ERP is a dry but very necessary software component in the running of organizations, covering everything from procurement and supply chain and inventory management through to risk assessments, finance and human resources. Typically large enterprises can pay up to billions of dollars in contracts with systems integrators and consultancies to handle their ERP, either by customizing off-the-shelf software for clients, or writing custom applications from the ground up, to fit an organization’s particular needs.

In typical AI startup fashion, Peters believes that this work is best done, and can be compressed into, an AI platform built for the purpose. While some challenges have been significantly trickier for AI to address than others, there have been some early signs of ERP potentially being one area where it might stick, and for Cogna to potentially become one of the players delivering on that pitch. A year since launch, Cogna has signed up customers that include the U.K. gas distributor Cadent Gas and infrastructure and utilities service provider Network Plus.

“To be clear, none of our customers think of it as ERP software,” Peters said in an interview. “For them, they’ve got a problem which isn’t solved by using SAP or [another] legacy system. We deliver a custom, precision-built piece of software for that. They experience [it] ike a classic piece of SaaS, but it happens to have been built specifically for them, specifically for their workflow. And it’s written by our AI.”

Cogna balances a mix of generative AI with other kinds of tooling to actually put together its custom software. Non-technical teams can describe their pain points in natural language, and the Cogna does the rest, the company claims.

“We’re a team of experts in domain-specific languages, compilers, AI and reliable and scaleable enterprise SaaS,” Peters said.

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These days, it’s not uncommon to come across AI startups leveraging multiple large language models simultaneously depending on a particular task at hand — it’s the customization that makes a startup unique — and that is the case here, too. Peters said that the language models used for people to interact with its platform come from a variety of providers that include OpenAI and Anthropic. These are “a key part of our ‘Natural Language Compiler,” Peters told TechCrunch over a call.

On top of that, Cogna is building an engine so that “the software can truly write itself,” said Hussein Kanji, the co-founder of Hoxton Ventures.

In doing so, Cogna is an example of how generative AI — which saw a viral explosion with the launch of consumer-accessible services like ChatGPT — is indeed being folded into enterprise usage and more complex applications. That is important because a number of foundational AI companies, like OpenAI, have made it clear that they, too, have ambitions to tap into the enterprise market, a highly lucrative area that will help them generate the vast revenues that investors expect.

Kanji likens what Cogna is doing to Cursor, the code building tool from OpenAI-backed Anysphere. We broke the news last week that Anysphere is in the middle a massive, unsolicited bidding war among investors that want to back it, valuing Anysphere as high as $2.5 billion on the back of massive business growth, so the area is clearly very hot.

“That’s kind of what Cogna is also doing,” he said.

Based on his’ experience at self-driving tech company FiveAI, Peters is adept at spotting openings in the market early, but he also has experience in how to shift gears, so to speak, when plans don’t go as you expect them to.

“We had cars driving around London in 2018,” he recalled. “[But] we then pivoted to providing the development environment to develop a stack for other companies that were building their own electronic design automation stack. We were running a million simulations a day by the time we sold the company.”

Five.ai, which had raised around $78 million in funding was valued at $216 million in its last round before it was acquired by Bosch for an undisclosed sum.

Cogna now plans to go up against classic IT consultancies such as Wipro and CapGemini.

The investment into Cogna is the first from Bryan Gartner, formerly of Khosla Ventures, who joined Hoxton as its newest partner last year.