Munich Transparency in supply chains is becoming increasingly important for companies in view of their own climate and sustainability goals and regulatory requirements. “It’s no longer enough to just select the supplier based on the lowest price and then send out codes of conduct,” says Martin Berr-Sorokin, co-founder and CEO of Integrity Next.
The start-up has developed a software platform designed to help identify and manage risks in the supply chain, for example in relation to the environment, human rights and CO2 emissions. The company has now gained EQT as an investor. The venture capital specialist is investing 100 million euros from its growth fund in the company.
In a difficult environment, Integrity Next thus succeeded in one of the largest financing rounds among German start-ups in recent times.
The situation for young companies had worsened again in the past few weeks with the bankruptcy of the Silicon Valley Bank. “We weren’t under any pressure to raise capital because we’re profitable,” Berr-Sorokin said. “But now is the right time to invest in growth.”
The case shows, says Carsten Rudolph, Managing Director of the BayStartup investor network: “Well-prepared start-ups in attractive markets continue to find well-stocked funds that are ready to invest.” Integrity Next covers a topic that is interesting for investors.
Who is the person you are talking about?
The Munich start-up was founded in 2016 by Berr-Sorokin, Simon Jaehnig (CRO) and Nick Heine (COO) and has so far been self-financed. The CEO had previous purchasing and supply chain experience and software expertise.
Back when the company was founded, topics such as sustainability in the supply chains were more of a “nice-to-have”, i.e. something that is nice if you have it, but not a must. “Originally, we primarily wanted to develop a platform for small and medium-sized businesses,” says Berr-Sorokin. But large corporations in particular recognized the issue early on.
Why is the business idea important?
Many companies have set ESG goals. “E” stands for ecological, “S” for social, “G” for governance, so it’s about good corporate governance. In addition, there were specifications such as the German Supply Chain Due Diligence Act at the turn of the year.
Companies whose suppliers violate human rights face high fines in the millions in the future. “Most companies still have some catching up to do when preparing for the effects of the supply chain law,” says Verena Deller, supply chain expert at purchasing consultancy Inverto. “We see a great deal of uncertainty among those affected.”
>> Read also: Comment – The Supply Chain Act is well thought out but badly done
Integrity Next now offers real-time information on thousands of suppliers on the platform. According to the company, the analysis tools monitor more than a million companies in 190 countries. Among other things, publicly accessible databases are used, but also critical news, for example about environmental scandals. This should make it possible to manage ESG risks in real time.
According to estimates by the investor EQT, the market for supply chain software in Europe is likely to grow by more than 50 percent in the coming years to two billion euros in the medium term. Other experts, such as the PwC consultancy, assume even greater potential.
How far is Integrity Next?
The cloud platform is in place. Integrity Next has been on the market with a first product since 2017, which has been expanded to include more and more categories. Customers can sort by categories such as child labor, CO2 pollution and environmental protection. Overall, critical topics are covered so far.
According to Integrity Next, the platform makes it possible to set up a consistent ESG risk management process that covers international standards and regulations as well as voluntary commitments such as climate targets.
Customers include, for example, large companies such as Evonik, Fresenius Medical Care, Henkel, RWE and Siemens Gamesa. Now you want to focus more on medium-sized companies. According to industry estimates, the company’s annual recurring sales have grown at three-digit growth rates in recent years to a double-digit million amount.
What are the challenges?
The market is sorting itself out. “The biggest competitors right now are companies trying to do it in-house,” says Dominik Stein, partner at EQT Growth. “A medium-sized company then has to employ ten or 20 people who call the suppliers.” These companies must therefore be convinced that a digital platform is more attractive to them.
>> Read also: SMEs are changing supply chains – but dependency on China remains high
In addition, there are specialized consulting firms and companies that certify suppliers individually as competitors. “We looked very closely at the market and concluded that Integrity Next’s automated software solution was the best solution,” says Stein.
It is also important, says a manager of another software system, that the platform can be connected to classic systems such as SAP. This also applies to projects such as Catena-X, with which the automotive industry is improving data exchange between manufacturers and their suppliers. To this end, BASF, BMW, Henkel, Mercedes, SAP, Schaeffler, Siemens, T-Systems, Volkswagen and ZF recently founded the operating company Cofinity-X. Integrity Next is targeting compatibility with Catena-X.
The platform is now to be rolled out to a large extent. EQT not only gives 100 million euros for this, it also wants to advise the management on an operational level. “We have exciting proposals for appointments, for example for the supervisory board,” says EQT Growth Partner Stein. In addition, there are experts in-house, for example for digitization, product development, acquisition issues and the recruitment of talent. This expertise can be passed on to Integrity Next.
According to Stein, the common vision is “to make the company even bigger”. There will be more and more regulation on ESG issues worldwide in the next few years – and for good reason. Therefore, the market will grow and expand. According to Stein, the focus in the coming years will be on scaling the business model. “In the long term, this could also be a great story for an IPO.”
Every week, the Handelsblatt presents young companies that managers, entrepreneurs and those interested in business should now take a look at. The focus is on the innovation potential, which investors also pay particular attention to. The business models and ideas could also provide new impetus for products and solutions in other sectors.
More: You can find more start-up checks here