The funding landscape remains very difficult for tech startups, but there are still some pockets and specific companies that are generating a lot of interest from investors right now as they look set to break the current macroeconomic trends gripping the world . Today a startup from Munich called IntegrityNext announced it has raised its first-ever funding, a €100 million ($109 million) equity round, for a new spin on supply chain software: a platform that helps organizations with many suppliers automatically audit and monitor those companies for compliance with environmental and sustainability governance (ESG) rules — both rules that companies have set for themselves and rules that arise from a growing number of regulations.
The funding will come from a single investor, EQT Growth, and will be used to build the platform, as well as the company’s go-to-market position: it has a growing number of customers — and there are are actually a growing number of potential suppliers – in the US and Europe, and so the plan is to build more capabilities to meet that opportunity. Those capabilities remain in the areas of environmental and ethical labor obligations, and for now there are no plans to repeat audits around things like whether a supply chain engages a company in violating embargoes against countries due to political disputes or national issues. security.
The crux of the product is a platform that acts as a big data ingestion engine that collects information that is publicly available to help develop risk profiles for different markets and different companies, complemented by regular contact with companies in the supply chain to get details to provide. All this is compiled into a database which then provides an alert system and audits for IntegrityNext’s customers to better understand what is going on in their supply chains. However, what they do after that is up to those customers: they can then use this to either require their partners to change, or switch partners, or send human auditors for deeper investigation, or I think nothing at all. But ultimately it’s about building a way to manage thousands of suppliers for some companies.
“You have to find an efficient way to manage that,” says Dominik Stein, partner at EQT Growth. “You can’t go to every company and do every check yourself, that just doesn’t work.” (Stein joins an advisory board in this round.) From my understanding, an average customer pays $60,000 a year for the service, but the amount can be significantly higher or lower depending on the size of the supply chain.
IntegrityNext, and this round, are part of that group of startups that have grown impressively in recent years, but under the radar. The startup has been profitable since 2004 and fully booted to date. On its own, it has picked up a 200-strong list of enterprise customers, including Siemens Gamesa, Infineon and SwissRe, with a supply chain database that monitors nearly 1 million suppliers in 190 countries. According to CEO Martin Berr-Sorokin – who co-founded the company with Simon Jaehnig (CRO) and Nick Heine (COO) – the decision was made to raise now to essentially strike while the iron is hot.
The company had never raised outside financing, but it was not short of incoming interest, he said, and the state of the market and the fact that raising it may not have been as easy influenced things later on.
“We wanted to have a strong partner for the next phase of growth,” Berr-Sorokin said in an interview. “We entered the next phase, we need support with hiring, expanding our network, sales and marketing, and entering new markets in Europe and the US. We didn’t have to. It was an option and we feel lucky that we did it.
ESG is currently evolving rapidly as a market opportunity. On the one hand, thanks in part to social media, consumers have become significantly more aware of how a company’s supply chains can effectively paint that company with the tar of labor exploitation and bad environmental practices, and that puts a lot of pressure on those companies to do better. The companies themselves, meanwhile, are ultimately run by people. Some may be stubborn about getting things done at all costs, but a large number have a conscience and want to do good with it, not just for appearances.
On the other hand, there have been notable regulatory developments that could make anything ‘nice to have’ that revolves around ESG more of a ‘must do’. In Germany, companies with more than 3,000 employees are required to conduct audits and reporting to demonstrate their own ESG compliance — compliance determined by regulators — or face fines and other penalties. That number is will come down in 2024 up to 1,000 employees. And in Europe, regulations are being developed that will place similar requirements on EU companies, further reducing the number of employees to 250.
And that opportunity is certainly one that is noticed by others: World favourite And Front wave also build platforms that automate the process of companies auditing and monitoring suppliers. Others, like Salesforce, have started incorporating ESG supplier monitoring into their sustainability product sets, and a French start-up, Sesamm, is building AI technology to help companies with their sustainability commitments.
That’s not the whole story, though: these regulations will inevitably be pushed back, and there’s a big question mark over how all this will play out in one of the largest and most industrialized countries in the world, the US, where some lawmakers have floated the idea of not only to stay away from this kind of regulation, but even to proactively discourage developments on this front as contrary to economic progress. Companies are not all on board either.
“Yes, some companies complain, but others see it as a competitive advantage to be good at ESG,” says Berr-Sorokin. “Of course the regulatory regime helps us, but if it is pushed back, we still have trends in our society and good business practices.”