The Rise of Compliance Tech: Companies Embrace Solutions as a Strategic Initiative

A company’s ability to adapt and transform to changing environments is foundationally linked to its long-term success and growth. In the world of investing, we often see businesses undergoing transformation for several reasons: changes in demand, the adoption of new technologies or processes, and, maybe most relevant today, the ever-changing regulatory landscape.

Companies tackle regulatory concerns with highly specialized employees, teams of lawyers, industry-focused analysts, and almost always through the adoption and implementation of software. With 70% of corporate risk and compliance professionals saying that they’ve noticed a shift from check-the-box compliance to a more strategic approach over the last few years¹, the compliance tech sector will continue to benefit from increased adoption and continued capital investment.

Compliance software is mission-critical, with generally very strong retention characteristics, long-term customers, and long-term value. These are just some of the appealing attributes and tangibles that make for an attractive risk/return profile for software investors. Furthermore, according to multiple research publications and noted in Verified Market Reports 2023 summary, the compliance software market was valued at $100 billion in 2023 and is expected to reach $200 billion by the end of 2030².

High Demand for Lowering Risk

Regulatory pressure is one of the most significant drivers behind the increased adoption of compliance software. According to PWC’s Global Risk Survey, 40% of surveyed business and risk leaders said their organization has improved its approach to risk to achieve more robust compliance with regulatory standards³. With increased scrutiny around regulatory compliance, companies must implement software solutions, along with hiring specialized talent, to confidently ensure that regulatory risk is measured and mitigated, ultimately minimizing hefty fines and legal issues. Having to adhere to such standards simply means a lot of demand.

Market demand for compliance software, especially in highly complex and regulated industries like finance and healthcare, means a large addressable market with expanding budgets. This translates into stable and predictable revenue for these highly sought-after software applications and built-in abilities to increase wallet share with customers over time.

Model for Success

Contracted, highly recurring software revenues are the key to success for almost any business model. Software providers innately boast customers who are generally locked into multi-year contracts, which tend to require more applications, more features, and more capabilities, creating demand for capital met by interest from investors.

With the continued advancements and adoption of AI and automation, these applications are becoming increasingly efficient and effective, allowing businesses to drive bottom-line growth.

The End Use Case is Bigger Than We Think

The increasing demand for compliance technology is also fueled by a fundamental shift in companies that are adopting more strategic and holistic approaches to risk mitigation. Gone are the days when compliance teams, health and safety officers, and supply chain risk managers were the only roles in need of compliance technology.

Today, businesses must take a comprehensive look at risk and engage the right tools to manage that risk across every facet of the company — whether it’s third-party vendors, information systems and IT, or simply uncharted territory as a company expands into new geographies with varying regulatory requirements. Long story short, there’s more risk being assessed company-wide and the time is now for companies to allocate the proper resources and tools to mitigate the expansive list of risk factors.

A Relationship First Approach To Software

RF Investment Partners is dedicated to using flexible debt and equity financing solutions to support transformative management teams in lower-middle-market companies. Led by a team with 100+ years of collective principal investing experience — including a dedicated software team — RF actively invests in software/SaaS companies and has made thirteen software investments in the last four years.

We’ve proudly partnered with compliance software companies such as:

• Comply365, a leading global provider of operational content and compliance solutions supporting the aerospace and rail industries;
• NetVendor, a SaaS-based vendor management platform that helps property management companies manage their vendor network and ensure compliance with property-specific insurance requirements, and;
• PEC Safety, a provider of safety learning and SaaS-based safety compliance solutions to high-risk industries.

RF is optimistic that the compliance landscape will continue to be an attractive vertical to invest in and is excited by the continued growth and innovation in the industry. We currently work in partnership with nine different portfolio companies focused on software and SaaS, and we are seeking opportunities with businesses in that sector with $5mm+ ARR. RF is actively looking at several compliance platforms and would love to connect with founders and management teams who are seeking a relationship-first capital partner with a flexible mandate and structure.