00:00Moonshot's Kimmy K3 model has sent ripples through Silicon Valley and Washington, but the significance, according to our next guest,
00:07isn't about Chinese versus U.S. AI supremacy.
00:10It's about credible, cheaper alternatives that drive AI adoption.
00:15Cara McCormick is the chief investment officer at Beringia, a firm investing in early to growth stages across the U
00:22.S. and Europe.
00:23Very interesting perspective.
00:25Just bring me your ideas on this.
00:28You know, the impact of Kimmy K3 being open weight, how the economics of it add up.
00:35It's been constantly discussed for a week now.
00:39Yeah, I guess it's worth framing a little bit of what we do.
00:42And thank you for the introduction.
00:43But as you said, we do early growth capital.
00:45So we aren't necessarily looking for shoot the lights out, $10 billion type return businesses.
00:50We're looking for growth businesses that get to real profitability.
00:53And that's what we focus on.
00:55So for us, the capital efficiency of the businesses matter quite a bit.
00:59And that feeds into our European and U.S. thesis, which I can come on to.
01:03But I guess the net result for us is that as frontier models become more commoditized or more widely available
01:10and cheaper to use,
01:11it's very helpful to our portfolio companies in whole because it means that it's more capital efficient to be able
01:17to launch those businesses.
01:18And to be blunt, it also puts pressure on keeping the cost of the U.S. frontier models down.
01:23So this ties together your strategy with everything in the news cycle.
01:28The conclusion when Kimmy K3 hit is that it was the frontier labs that were at risk.
01:33But net net, this was good for AI.
01:35Now in Europe, the capital environment is completely different.
01:38And those founders run leaner businesses respond to all of that.
01:43You know, why we're seeing a Chinese startup like Moonshot make some progress.
01:48It gets backing, of course, from national funds.
01:51But that has been the sort of debate.
01:55It is an interesting one.
01:56And in part, it does feed into kind of our European thesis because we do see often European businesses or
02:02even U.S. businesses that aren't specifically valley-based have to start to grow and thrive on less available capital.
02:09So if you don't have the huge amounts of capital rounds that a lot of the valley companies are raising,
02:14you have to do more with less.
02:15And so the thesis in total is that the more these frontier businesses are becoming commoditized or cheaper or more
02:22widely available or open sourced, the better it is for the businesses.
02:25And it helps a lot, especially with our European portfolio where capital isn't as freely available as it might be
02:30in the U.S.
02:31And we've genuinely seen higher growth, lower costs as a result of using models.
02:36And different models are right for different types of activities.
02:39So we might still be looking at using a Claude or a Fable 5 where it's really important deep tech
02:44work that we need to be doing, whereas DeepSeq or Moonshot might do more than a perfectly adequate job for
02:51some of the day-to-day tasks.
02:52So we have really seen the cost of launching these businesses start to decline.
02:56And even where the businesses are already established.
02:59So we have one business called Edited, which is in traditionally the SaaS space.
03:02They've rebuilt their entire software using AI.
03:05And the development cost has been so much lower and the launch has been so much faster with the reception
03:10from the market being so much better.
03:13Karen, you're in the camp that agrees AI will be transformational.
03:18You just gave the SaaS example.
03:20But you say that we're in the messy middle.
03:24Yeah.
03:25What do you mean by that?
03:26So, I mean, we've been through so many different market cycles.
03:29And Beringia as an entity has been around for 30 years.
03:31I've been doing this for 20 years and in the corporate world for 30.
03:34We see technology cycles.
03:36This isn't new for us.
03:37I mean, mobile revolution moved to cloud.
03:40Now we're in AI.
03:41We're still trying to figure out how things are going to work.
03:43So there are going to be pain points.
03:44And I feel, I mean, my own children, for example, are going to find the job market may be difficult.
03:49There are going to be pain points as we figure out how this works.
03:51But I do think it's a net positive all around.
03:54And I also would say I feel like the whole idea of like SaaSpocalypse, like SaaS businesses are all going
03:59to suffer and not be in existence anymore.
04:02It really doesn't hold water.
04:03Because what we're seeing is a lot of SaaS businesses are just becoming.
04:07They're really just software businesses.
04:09And whatever they're using, whether it's cloud computing or AI tools, they will continue to thrive as long as they
04:14move with the market.
04:15If you're standing still, then you probably have a problem.
04:17But I think most of the software businesses are adopting AI very quickly.
04:22One of the things I think we are seeing is that AI is moving so fast that what was revolutionary
04:26two or three years ago is actually now a bit dated.
04:29So you might have had a moat, so to speak, two or three years ago based on your use of
04:32AI.
04:33But for the CEOs and for the small companies, they're having to move so fast to make sure that that
04:37moat is sustainable.
04:39And we even see that in the large public markets.
04:41I mean, if we think about the constitution of the top ten holdings in the public markets, in the last
04:47couple of weeks, those have been churning.
04:48And they've been churning because we're looking at businesses on a reactionary basis where we thought they had a solid
04:54moat.
04:54And then something happens over here and we question whether that moat is really there.
04:58And then something happens over here and the guy who took the top ten spot is now moving down again.
05:03So I think a lot of it is this market is moving so fast.
05:07Trying to determine what your moat is and how long that's sustainable for is tricky.
05:11Karen McCormick, Chief Investment Officer at Berengia.
05:14We will have you back.
05:15And I think next time there's a conversation to be had about European defense tech as well.
05:19Absolutely.
05:20Making the first appearance on the show.
05:21Thank you so much.
Comments