IntegrityNext raises $109M for supply chain audit platform for ESG compliance

The funding landscape remains very challenging for tech startups, but there are still pockets and specific companies that are currently attracting a lot of interest among investors, as they seem to be able to break through all the current macro trends that are taking over the world. Today, a Munich-based startup called IntegrityNext announced that it has raised its first-ever funding round, a €100 million ($109 million) seed round, for a new spin on supply chain software: a platform that helps organizations with many suppliers automatically audit and monitor these companies to ensure that they comply with environmental governance and sustainable development (ESG) rules – both those that companies have set for themselves and those that come from a growing set of regulations.

The funding comes from a single investor, EQT Growth, and it will be used to continue to grow the scale of the platform but also the company’s market position: it has a growing number of customers – and there even has a nascent number of potential suppliers – in the US and Europe, so the plan is to develop more capabilities to seize this opportunity. These capabilities will remain in the areas of environmental and work ethic commitments, and at this time there are no plans to wrap audits around, for example, whether a supply chain involves a company in the act of breaking embargoes on countries due to political disputes or matters of national interest. security.

The core of the product is a platform that acts as a big data ingestion engine that provides publicly available information, to help develop risk profiles for different markets and companies, complemented by regular contact with supply chain companies to provide details. All of this is compiled into a database which then provides an alert system and audits for IntegrityNext customers to better understand what is happening in their supply chains. What they do next is up to those clients: they can then use it to either ask their partners to switch, or switch partners, or send in human auditors for further investigation, or I guess none of the All. But ultimately it’s about creating a way to manage what could be thousands of vendors for some businesses.

“You have to find an effective way to handle this,” said Dominik Stein, partner at EQT Growth. “You can’t go to every company and do all the checking yourself, it just doesn’t work.” (Stein joins an advisory board with this round.) From what I understand, a typical customer might pay $60,000/year for the service, but the figure could be significantly higher or lower depending on the size of the chain. supply.

IntegrityNext, and this round, are among that group of startups that have grown impressively over several years, but under the radar. The startup has been profitable since 2004, and so far it has been fully seeded. On its own, it pulled together a list of 200 corporate clients, including Siemens Gamesa, Infineon and SwissRe, with a supply chain database that monitors nearly a 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 relaunch now to essentially strike while the iron is hot.

The company had never taken outside financing, but there was no lack of interest, he said, and the state of the market and the fact that raising might not be as easy influenced things by the following.

“We wanted to have a strong partner for the next phase of growth,” Berr-Sorokin said in an interview. “We were getting to the next phase, we needed help with hiring, extending our network, sales and marketing, and entering new markets in Europe and the United States. We didn’t have to. It was an option, and we feel lucky to have done so.

ESG is rapidly evolving as a market opportunity right now. On the one hand, consumers, thanks in part to social media, have become much more aware of how a company’s supply chains could effectively paint that company with the tar of labor exploitation and bad environmental practices, and this puts great pressure on these companies to do better. Businesses themselves, on the other hand, are ultimately run by humans. Some may be adamant when it comes to doing business at all costs, but many have a conscience and want to do the right thing, and not just for looks.

On the other hand, there have been notable developments in the regulatory arena that could make any “nice to have” that has swirled around ESG more of a “must do”. In Germany, companies with more than 3,000 employees are required to provide audits and reports to demonstrate their own ESG compliance – compliance established by regulators – or face fines and other sanctions. This number drops in 2024 to 1,000 employees. And in Europe, pending regulations will impose similar requirements on EU businesses, further reducing the number of employees, to 250.

And this opportunity is certainly being spotted by others: Worldfavor and Prewave are also building platforms that automate the process of auditing and tracking enterprise vendors. Others, like Salesforce, have started integrating ESG supplier monitoring into their sustainability product sets, and a startup in France, Sesamm, is developing artificial intelligence technology to help companies meet their sustainability commitments. of sustainable development.

That’s not all, though: there will inevitably be pushback on these regulations, and there’s a big question mark over how it will all play out in one of the world’s largest and most industrialized countries. of the world, the United States, where some lawmakers have floated the idea of ​​not only staying away from any such regulation, but even proactively discouraging developments on this front as contrary to economic progress. Nor are businesses all on board.

“Yes, some companies complain but others see it as a competitive advantage to be good at ESG,” Berr-Sorokin said. “Of course the regulatory regime helps us, but if it is pushed back, we still have trends in our society and good business practices.”