How AI is Transforming GRC Software

AI burst into the public eye with the release of ChatGPT in November 2022. Since then, the AI market has grown by $60 billion and shows no sign of slowing down, according to Grand View Research. AI is reshaping the way businesses in every industry operate—and capital is taking note.

In the second quarter of 2024 alone, AI start-ups in the U.S. received $27.1 billion, more than the $26 billion in all of 2019. This surge in investment underscores a growing recognition of AI’s potential to drive innovation and efficiency. SaaS companies across all verticals are incorporating AI to help create better customer experiences with a goal of future-proofing their business.

Of the verticals, however, Governance, Regulatory Risk and Compliance (GRC) could be well-positioned to benefit. Given the privacy and security concerns, enormous amounts of data, and an ever-changing regulatory landscape that fall under the GRC purview, AI can play a crucial role in helping to protect organizations from legal issues, financial penalties, and reputational damage.

GRC software is already showing strong growth, and GRC SaaS companies that incorporate AI are generating increasing interest among buyers and investors. As an example, Holistic AI, a company that specializes in AI GRC, recently announced an impressive seed round funding of $220 million. Now is the time for GRC SaaS founders to think strategically about potentially using AI to aid in defending their market share, attracting new customers, and ultimately positioning themselves for a successful exit.

Key Drivers for AI Adoption in GRC

Increasingly, AI and automation are being used in GRC processes, providing organizations with noteworthy advantages in efficiency, accuracy, and proactive risk management. Because it continuously learns from the data it processes, AI becomes more effective over time, adapting to new regulatory requirements while potentially enhancing data security and privacy management.

As organizations face growing regulations and rising expectations for robust risk management and governance, several key drivers could be accelerating the adoption of AI in GRC processes:

Regulatory Complexity

Data privacy, supply chain transparency, anti money laundering, consumer protection … These days, even small companies face a growing and ever-changing list of regulatory requirements, ranging from local to international. The risks of non-compliance, which include financial penalties and reputational damage, can be severe.

AI can help organizations by automating compliance reporting, conducting risk assessments, and predicting regulatory impacts. It can also be used to monitor regulatory changes across jurisdictions and provide real-time alerts and updates on new or modified regulations. For GRC software companies, this could represent an opportunity to reduce COGS required to maintain your solution set, particularly if data inputs and regulator compliance are critical. Given the importance of profitability for GRC software companies, the potential to increase profit margins will only add to the story and enterprise value of the business upon an exit.

Data Analysis and Pattern Recognition

The sheer volume and variety of GRC-related data—from regulatory documents and financial transactions to internal communications and market trends—make it challenging, if not impossible, to process and interpret it manually. Traditional methods often fall short in identifying emerging risks, detecting compliance violations, or uncovering inefficiencies within governance structures.

By automating data collection, processing, and analysis, AI may enable organizations to handle large datasets with speed and precision. It can aggregate vast datasets, recognize patterns and relationships within them, extract meaningful insights, and help predict risks. This may represent a new product offering for many GRC software companies as they look to upsell more advanced analytics and value-added services on top of existing product suites.

Security

Security breaches are costly: On average, a single breach now costs U.S. companies $9.48 million, and that’s before taking reputational damage into consideration. Increasingly, AI is being used to facilitate breaches by scanning for vulnerabilities, powering ransomware, enhancing phishing campaigns, and conducting DDoS attacks.

However, the same technology may also be used to help protect organizations from these and other threats. AI can aid in reducing the likelihood of a successful attack and strengthen an organization’s overall security posture by continuously monitoring network activity and user behavior, detecting and responding to anomalies in real-time, and predicting risks before they escalate.

The Need for Operational Efficiency

Traditional GRC processes often involve manual tasks, such as data entry, document review, and compliance checks, which can be time-consuming, error-prone, and resource-intensive. Inefficient operations can result in delayed responses to regulatory changes, missed compliance deadlines, data integrity issues, and poor decision-making, all of which could pose significant risks to the business.

AI can help enhance operational efficiency by automating these routine tasks, allowing for faster and more accurate processing of vast amounts of data. This could also reduce the likelihood of human error and frees up resources to focus on more strategic tasks.

Is Your Company Ready?

By leveraging AI, organizations can help transform their GRC functions into proactive, data-driven systems that not only aid in managing risk and increasing compliance but may also promote overall organizational resilience and performance. The SaaS companies that enable their customers to do this effectively might not only provide greater value but could also help achieve higher retention rates, increase their market demand, and ultimately command higher valuations in the marketplace.

As more organizations recognize the transformative impact of AI, GRC SaaS companies that fail to adapt risk being left behind. Now could be the time for GRC SaaS companies to consider embracing AI, not only to enhance their offerings but to help secure their place in the future of the industry.

To learn more about the current state of GRC software, read The GRC Market: Who’s Buying? and How GRC Companies Can Build Better Moats for M&A Opportunities.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice. The material may contain "forward-looking" information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns and proposed or expected portfolio composition.

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