Text by Pyr Marcondes, Senior Partner at Pipeline Capital Tech.
When Russian forces attacked Ukraine last month, the US and its allies imposed severe sanctions on business with the country, cutting off more than half of Russia’s high-tech imports and restricting its access to technology inputs.
One impact of this whole movement is that Western global companies needed to adapt to the embargo and structure their tech compliance environments in a differentiated and highly precise way. A sector, moreover, at a high rate of growth. Even before the war.
“This is not a sexy space,” said Martin Markiewicz, CEO and co-founder of Silent Eight – which leverages AI to build custom compliance models for financial institutions. “But it’s hard, especially when you have to do it on a global level.”
Compliance technology – regtech as some call it – can help companies follow the rules and laws that surround the worlds of finance, healthcare, privacy and more. As regulations have grown with new laws – such as the European Union’s General Data Protection Regulation – so has the compliance industry, as companies seek to maintain through automation what they previously did manually.
“Ten years ago, humans could make spreadsheets of these things,” said Mukund Goenka, co-founder and CEO of Regology, which organizes regulations globally to help companies with compliance. “But right now, even if you’re in manufacturing or IoT, you can’t do that.”
The formula is simple: the more regulations, the more money.
As regulation has grown, so has investment in this industry. While quite niche just five years ago, investment in venture capital-backed compliance companies has exploded in the past year – precisely because data and privacy issues were becoming increasingly critical.
The industry has seen a steady increase in dollars invested over the years: compliance funding jumped from $1.7 billion in 2020 to over $5 billion last year. He is approaching $1 billion this year after only about 10 weeks.
While the industry has seen more money, it has also had more to deal with than ever before – including now extensive sanctions due to superpower-spurred warfare.
“We saw a big increase last week to this week in the number of sales calls,” said Goenka, who added that the increase was around 3x.
Regology – which raised $8 million from Series A last August – maintains a database of laws and regulations for over 30 countries and screens over 4,000 sources worldwide daily to keep its clients up to date on any changes that may affect them.
Goenka said that the day after Russia invaded Ukraine, a partner company that left Y Combinator with Regology called him. The startup has a Ukrainian and Russian founder.
“They were like, ‘What are we going to do?'” Goenka said.
While many think only of money when it comes to the announced sanctions, Goenka said it’s important to remember that it involves much more. For example, the new sanctions could involve a US company that designed a product that is being built overseas and sold in Russia.
All this complexity is synonymous with opportunity. Investments will only grow in tech compliance. No turning back.