Axios Pro Rata: Pay-to-play | Axios Pro Rata Summary

1. Key Themes

Deregulation is reopening pay-to-play risk in public pensions

The SEC's proposed rescission of Rule 206(4)-5 removes a 16-year-old federal guardrail against fund managers buying influence with elected officials who oversee pension money, betting that state/local laws (which originally failed) will now suffice.

"It did not propose any sort of replacement, instead arguing that existing state and local laws would suffice — even though it was the failure of those very laws that led to the rule's creation in the first place."

AI-driven underwriting is unlocking new consumer fintech categories

Startups like Split Pay are using AI-built foundation models to underwrite short-term consumer credit more precisely than legacy models, targeting the mismatch between income timing and bill due dates rather than income level itself.

"We believe that AI is going to blow up underwriting, so we spent our first two years like a lab building a new foundation model focused on people under 40."

Mega-scale capital is still flowing into frontier/deep tech (AI, space, energy)

Despite broader market caution, single deals this week show enormous checks going to foundational AI labs, reusable rockets, and cargo spacecraft — signaling investors still see frontier tech as investable at massive scale.

"Mistral, a French AI lab, raised €3b in Series D funding at a post-money valuation north of €21b." / "Stoke Space... raised $1b in Series E funding."

Industrial conglomerates are re-entering large-scale M&A

GE's return to "mega-takeover" dealmaking, its largest deal under CEO Larry Culp, signals renewed corporate confidence in scaling core industrial franchises (aerospace supply chain) amid tight component demand.

"GE is back in the mega-takeover game, this morning agreeing to buy Consolidated Precision Products for $11.75 billion... This is CEO Larry Culp's largest acquisition in his eight years at the helm."

2. Contrarian Perspectives

The SEC's justification for rolling back pay-to-play rules doesn't hold up to its own history. The agency argues existing state/local laws are adequate protection, but Primack points out this is precisely the failed status quo that necessitated federal intervention in the first place — and that the "burden" argument is weak given the rule's maturity and low enforcement volume.

"State and local prosecutors often had difficulties proving quid pro quo, and believed the federal ban was the best way to stop slippery actors." ... "To date there have been fewer than two dozen related charges by the SEC."

Regulatory rollback is happening in an "echo chamber," not through balanced debate. The decision is being pushed through by an SEC with no Democratic commissioners seated, undermining the legitimacy of dismantling a rule that had unanimous bipartisan support at inception.

"The rescission proposal is supported by SEC chair Paul Atkins, and the SEC's two current commissioners — both Republicans, as Trump hasn't bothered to fill the two Democratic spots, creating something of an echo chamber."

3. Companies Identified

Split Pay — Lending startup for renters/consumers using AI underwriting; BFD of the issue for its attempt to fix bill/paycheck timing mismatches with a BNPL-style model.

"Split Pay lets renters pay their entire bill on the due date, but floats up to 50% for up to 30 days."

Mistral — French AI lab; raised a massive €3b Series D at >€21b valuation, showing continued mega-scale AI investment even outside the US.

"raised €3b in Series D funding at a post-money valuation north of €21b."

Stoke Space — Reusable rocket maker; raised $1b Series E, a case study in enormous late-stage space-tech capital formation.

"a Kent, Wash., maker of reusable rockets, raised $1b in Series E funding."

The Exploration Co. — French reusable cargo spacecraft developer; large $450M Series C highlighting European deep-tech scaling.

"raised $450m in Series C funding led by Bessemer Venture Partners, Atomico, and Scaleup Europe Fund."

Decart — AI world models/chip optimization startup; notable as Anthropic walked away from a rumored $6B acquisition, signaling caution around lofty AI M&A valuations.

"Anthropic has walked away from a possible $6b takeover of Decart."

GE (GE Aerospace) — Industrial conglomerate; case study in resurgent large industrial M&A under CEO Larry Culp.

"GE is back in the mega-takeover game... agreeing to buy Consolidated Precision Products for $11.75 billion."

Consolidated Precision Products — Aerospace parts supplier being acquired by GE; case study in strategic value of critical supply-chain assets amid high demand.

"a major supplier of airfoil castings, a critical component in airplane engines at a time when airplane engines are in high demand."

Holtec International — Nuclear power engineering company; notable for setting IPO terms implying a large ($9.35B) market cap, reflecting investor appetite for nuclear/energy infrastructure plays.

"set IPO terms to 50m shares at $15-$18. It would have a $9.35b market cap."

4. People Identified

Andrew Borovsky — Co-founder/CEO of Split Pay, former Block/Cash App executive; mentioned for articulating the core underwriting insight behind the company's AI thesis.

"What we found was that our average consumer had $90,000 of income and generated around $2,100 in cashflow, but was still struggling and living paycheck-to-paycheck. The biggest reason was the timing of bills."

Larry Culp — CEO of GE; mentioned for executing the company's largest acquisition in his tenure, marking a strategic milestone.

"This is CEO Larry Culp's largest acquisition in his eight years at the helm."

Paul Atkins — SEC Chair; mentioned as the driving force behind the pay-to-play rule rescission proposal.

"The rescission proposal is supported by SEC chair Paul Atkins."

5. Operating Insights

Build proprietary underwriting models around specific behavioral/timing frictions, not just credit scores. Split Pay's two-year "lab" investment in a foundation model for under-40 consumers illustrates a tactic of deep vertical R&D before productizing, rather than bolting AI onto legacy underwriting.

"We spent our first two years like a lab building a new foundation model focused on people under 40."

Design fee structures that align incentives without predatory mechanics. Split Pay avoids late fees/interest, instead using flat subscription plus percentage fees and access revocation for non-payment — a model worth studying for consumer fintech products navigating regulatory and reputational risk.

"It charges 2% of the entire bill, plus a $10 monthly 'subscription' fee, but doesn't charge late fees or interest. If someone ultimately doesn't pay, they no longer can use the service."

Regulatory comment periods are real windows for influence and risk management. With the SEC accepting comments for two months on the pay-to-play rescission, fund managers and LPs advising public pensions have a concrete, time-bound opportunity to shape (or challenge) the outcome.

"The SEC will accept comments for the next two months."

6. Overlooked Insights

Anthropic's walked-away $6B Decart deal is a quiet signal on AI M&A valuation discipline. Even top-tier AI labs flush with capital are backing off big acquisitions, suggesting some recalibration of what "world model" and infrastructure-optimization startups are actually worth relative to recent funding valuations.

"Decart has raised over $450m in VC funding, most recently in May at a $4b valuation... Anthropic has walked away from a possible $6b takeover."

Sovereign and pension capital are directly co-investing in frontier AI at massive scale. Buried in the Mistral round is the detail that a sub-national government entity is now a direct investor in a frontier AI lab — a notable shift in who's underwriting AI infrastructure risk.

"insiders a16z, ASML, Belfius, BNP Paribas CIB, Bpifrance, Carmignac, DST Global, Eurazeo... and the Grand Duchy of Luxembourg."