Strike Graph, a compliance automation company, sees inbound interest from strategics and private equity firms and would consider a majority investor when it next raises capital, said co-founder and CEO Justin Beals.

“We see [a potential] acquisition as highly likely in this particular marketplace,” Beals said, pointing to increasing interest in the governance, risk and compliance (GRC) space. A strategic buyer is “very appetizing to us” given how it would likely value the future of the business as a partnership more so than a sponsor would, he added.

Enterprise resource planning (ERP) solutions or companies that manage financial audits have shown interest in the Seattle-based company, as have companies providing security tools, according to Beals. Logical buyers also include large service providers that help customers become compliant with regulatory or cybersecurity requirements, he said.

Strike Graph develops AI tools that identify security practices and standards for its customers, supporting compliance frameworks including SOC 2, HIPPA, ISO 2700x, CCPA and GDPR. It focuses on standards and regulatory requirements in life sciences, financial services and education.

The company plans to raise more growth capital in 18-24 months – possibly sooner depending on the market, Beals said. “It comes down to the opportunity and the offer,” he said referring to the potential for a sale versus a capital raise. If it decides to raise more capital, the company would look for USD 25m-USD 50m, the CEO said.

It would likely hire an advisor prior to the next round, especially if majority stake or full sale opportunities are there, Beals said, noting it has ongoing casual conversations with several banks.

Strike Graph generates about USD 5m in annual recurring revenue and expects to double that amount in the next 18-24 months, Beals said.

The company could reach profitability within the next 18 months, according to Beals. To help accelerate growth, Strike Graph is starting to sign up larger customers, he said. It primarily looks for companies with at least 50 employees and a compliance or security leader on staff, Beals said, noting that its largest customers have around 30,000 employees.

It most often competes with consulting engagements but also wins deals against San Diego-based Drata and San Francisco-based Vanta, which have been more successful with smaller businesses, according to Beals.

Drata has made two acquisitions this year and was valued at USD 2bn in its USD 200m Series C announced in December 2022. Vanta, for its part, announced last month a USD 150m Series C valuing the cybersecurity company at USD 2.45bn.

Strike Graph announced last December it raised USD 8.5m led by BAMCAP at a USD 32m valuation, Beals said.

The company has more than 300 customers, with its biggest footprint in North America, Beals said. Whilst it has not taken a strategic approach to global growth, it has some adoptions in Europe, with large organizations in France specifically, he added.

Fresh funding would allow the company to grow its global footprint, Beals said.

Strike Graph does not currently have the capital to consider making acquisitions. In the future, targets of interest could include security tools with a broad horizontal reach or firms that perform audits it does not already perform, Beals said.

Beals and Brian Bero co-founded the around 50-person company in 2020 after incubating the idea at Madrona Venture Labs. Strike Graph has raised about USD 20m in equity since its inception. Other investors include Madrona Venture Group and Information Venture Partners. No investor owns a majority stake, Beals said.

DLA Piper provides legal services. Clark Nuber is its financial auditor.