The funding landscape remains very tough for technology startups, but there are still some pockets, and specific companies, driving a lot of interest right now among investors because they look like they’ll break through whatever current macroeconomic trends that are gripping the world. Today, a startup out of Munich called IntegrityNext announced that it has raised its first-ever funding, an equity round of €100 million ($109 million), for a new twist on supply chain software: a platform that helps organizations with lots of suppliers automatically audit and monitor those companies for compliance with environmental and sustainability governance (ESG) rules — both those that companies set for themselves, as well as those coming from a growing body of regulation.
The funding is coming from a single investor, EQT Growth, and it will be used to continue building out the breadth of the platform but also the company’s go-to-market position: it has a growing number of customers — and there are even a fledgling number of would-be suppliers — across the U.S. and Europe, and so the plan is to build more capabilities to meet that opportunity. Those capabilities will stay in the areas environmental and ethical labor commitments, and for now there are no plans to loop in audits around, say, whether a supply chain implicates a company in the act of breaking embargoes on countries over political disputes or issues of national security.
The crux of the product is a platform that acts like a big data ingestion engine sourcing information that is publicly available, to help develop risk profiles for different markets and different companies, complemented by regular contact with businesses in the supply chain to supply details. This all gets compiled into a database that then provides a warning system and audits for IntegrityNext’s customers to better understand what is going on in their supply chains. What they do next is up to those customers, though: they can then use this to help either require their partners to change, or to change partners, or send in human auditors for deeper investigations, or I guess nothing at all. But ultimately, this is about building a way to manage what might be thousands of suppliers for some companies.
“You have to find an efficient way to manage that,” said Dominik Stein, a partner at EQT Growth. “You can’t go to every company and do every check yourself, it just doesn’t work.” (Stein’s joining an advisory board with this round.)
IntegrityNext, and this round, are part of that group of startups that have grown impressively over several years, but under the radar. The startup has been profitable since 2004, and until now it’s been completely bootstrapped. On its own steam, it’s picked up a 200-strong list of enterprise customers, including Siemens Gamesa, Infineon and SwissRe, with a supply chain database that monitors close to 1 million suppliers across 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 taken outside funding, but it had no shortage of inbound interest, he said, and the state of the market and the fact that raising might not be as easy later swayed things.
“We wanted to have a strong partner for next growth phase,” Berr-Sorokin said in an interview. “We were getting to the next phase we need support for hiring, extending our network, sales and marketing, and going into new markets in Europe and the U.S. We didn’t have to do it. It was an option, and we feel lucky to have done it.”
ESG is rapidly evolving as a market opportunity at the moment. On one hand, consumers, thanks in part to social media, have become significantly more aware of how a businesses’ supply chains might effectively paint that business with the tar of labor exploitation and poor environmental practices, and that is putting a lot of pressure on those businesses to do better. The businesses themselves, meanwhile, are at the end of the day run by humans. Some may be hard-nosed when it comes to getting business done at any cost, but a good number have a conscience and want to do right by that, not just for the sake of appearances.
On the other hand, there have been notable developments playing out in the regulatory realm that might make whatever “nice to have” that has swirled around ESG into more of a “must do.” In Germany, companies with more than 3,000 employees are required to provide audits and reporting to demonstrate their own ESG compliance — compliance set by regulators — lest they face fines and other penalties. That number is coming down in 2024 to 1,000 employees. And in Europe there is regulation in progress that will place similar requirements on EU companies, bringing down the number of employees even more, to 250.
And that opportunity is definitely one being spotted by others: Worldfavor and Prewave are also building platforms that automate the process of businesses auditing and monitoring suppliers. Others like Salesforce have started to put ESG supplier monitoring into their sustainability product sets, and a startup in France, Sesamm, is building AI tech to help companies with their sustainability commitments.
That’s not the whole story, though: there will be inevitable pushback on these regulations, and there is a big question mark over how all of this will play out in one of the biggest and most industrialized nations in the world, the U.S., where some legislators have floated the idea of not only staying away from any regulation of this kind, but even proactively discouraging developments on this front as counter to economic progress. Businesses are also not all on board.
“Yes, some companies complain but others see it as a competitive advantage to be good in ESG,” said Berr-Sorokin. “Of course the regulatory regime helps us but if it gets pushed back we still have trends in our society and good corporate practices.”