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#G+D World

Enabling a Trust Backbone

New Technology
8 Mins.

Together with the European Investment Bank (EIB), G+D has established a co-investment platform with a volume totaling €50 million to back European early-stage startups in the TrustTech space. Investments will be made via G+D Ventures. But what exactly is TrustTech, and what role do the start-ups in that segment seek to play?

Nowadays individuals, businesses, governments, and devices are all interconnected, all storing and exchanging sensitive information with each other in activities as diverse as digital banking, e-commerce, social media, remote collaboration, and B2B transactions and processes. One could even characterize this giant mesh of connectivity as the “Trust Backbone” of our society.

Such a Trust Backbone is comprised of several layers, each contributing to the security and reliability of the overall ecosystem:

English infographic of the layers fof the trust backbone
  • The Digital Infrastructure Layer, enabling the exchange of data between parties: these are the computer networks, the servers, software applications, and devices which we all use on a daily basis
  • The Identity Layer, which ensures that only authorized parties (people, organizations, and machines) can participate in the data exchange
  • The Regulatory Layer, enforcing the rules which public authorities have put in place in order to protect the basic rights of the transacting parties (for example: data privacy, information transparency, and fair dealing), as well as to defend society against fraudulent and criminal activities such as money laundering and the financing of terrorism.
  • The Ethical Layer is where societal values that may not be explicitly protected by laws and regulations are observed and maintained. This would include for example a protection against falsified information (“fake news”) or an unethical implementation of artificial intelligence (AI).

Increasing threats to the Trust Backbone

In an increasingly digitized world, the Trust Backbone is continuously being threatened at each of its layers: cyberattacks on end-devices and servers at the digital infrastructure layer, for instance, are constantly on the rise and accelerated during Covid-19 as remote-work became standard practice.

Transacting online presents a challenge for the validation and verification of the identities of transacting parties, resulting in many cases of fraudulent transactions, fake accounts, identity thefts, and impersonation, thereby threatening trust at the Identity Layer.

Our everyday digital transactions collect an enormous amount of data. The need for proper handling of such personal identifiable information has caused regulators to introduce a broad set of data protection rules, such as GDPR, which can also lead to significant fines for companies if not followed.

As another example, money laundering has been growing steadily over the years, with the financial authorities imposing ever higher penalties. As a consequence, the challenges of adhering to anti-money laundering controls, procedures, and sanction checks have risen significantly in importance. Moreover, it is to be expected that the regulatory requirements will continuously evolve, a situation that forces constant adaption at the Regulatory Layer of the Trust Backbone.

One example of a threat to the Ethical Layer can be the misuse of AI algorithms. If used for good, AI can improve areas like manufacturing or supply chain processes, or help in healthcare with cancer detection. If used negatively, though, AI can be trained to create “deepfakes” to spread, for example, fake news or lure unsuspecting end users into fraudulent situations. Another threat to the Ethical Layer is if AI does not function in its intended way: for example, situations in which biased decisions made by AI models lead to the discrimination of certain societal groups.                      

TrustTech helps to strengthen trust in society

Confident, young Asian businesswoman with smartphone and smartwatch at financial district in city, looking up to sky

By considering the various layers of the Trust Backbone, it is evident that cybersecurity alone is insufficient to protect and restore trust. Cybersecurity is a critical component of trust, but it mainly focuses on the Digital Infrastructure Layer of the Trust Backbone. So we need additional tools and technologies to protect the other layers as well.

This is where TrustTech comes into play – by not being limited to cybersecurity. In the case of the example of untrusted AI, solutions for deepfake detection can ensure that users are only presented with trustworthy videos, images, and audio data. By ensuring the reliability of AI, the so-called “robustness of AI”, TrustTech solutions can ensure that AI is working in the way it was originally designed. TrustTech solutions can also help when it comes to the Regulatory Layer of the Backbone – for example via innovative anti-money laundering (AML) or anti-fraud solutions.    

On the one hand, TrustTech can expand the available toolset of businesses so they are able to exchange and work on data and still be privacy-compliant. Important approaches in the area of privacy-preserving data processing include homomorphic encryption, confidential computing, and data anonymization solutions that ensure privacy-relevant data is used in a compliant way.

On the other hand, TrustTech offers additional solutions to identify fraudulent or unlawful transactions. AI-based anti-fraud solutions or network-based AML solutions – often grouped under the term “RegTech” – are important to mention here. Also falling into the Regulatory Layer, so-called supervisory technologies or “SupTech” help regulators and governments to oversee the financial ecosystem at a macro level.

TrustTech is a rapidly developing field of innovation. Today, many additional concepts such as post-quantum cryptography, blockchain-based solutions, and new forms of authentication (including biometric-based authentication) fall into the category of TrustTech. And in the future, new concepts will certainly be developed to complement its broad scope – and help restore greater trust in our digitally enabled society.

“TrustTech expands the traditional definition of cybersecurity to include tools and technologies that promote trust across all layers of our digital ecosystem: infrastructure, identity, regulation, and ethics.“
Dr. Michael Hochholzer
Managing Director of G+D Ventures

The EU as an accelerator for TrustTech

The European Union has put in place several trust-centric regulatory frameworks, including GDPR, AML Directives, and blockchain-related regulations such as MiCA to protect end users against risks relating to the usage of crypto-assets (for example, by ensuring appropriate security for end-user wallets hosted by crypto exchanges). One might think such regulations could hinder innovation, but at G+D we think the opposite is true and see regulation as a great source for innovation and technological developments.

In addition, we see that many European countries support TrustTech innovations through major governmental budget commitments. There is also a large consensus among end users and businesses on the importance of maintaining trust in digital ecosystems. For example, the Estonian government today serves as a beacon to many others, proving that digital identities and governmental services provided to citizens can dramatically cut bureaucracy, reduce costs, and save time for all relevant stakeholders. This, in turn, has contributed to a rapid growth in the number of Estonian TrustTech startups in the country: over 100 have been founded since 2015. 

In Europe overall, we also saw a greater than three-fold increase in TrustTech startups between 2015 and 2021 compared. And in terms of venture capital raised – a good predictor of technological trends – we have seen a 20-fold increase in the capital deployed in disruptive areas of TrustTech such as RegTech, SupTech, Trust for Blockchain and AI Explainability compared to 2015. 

G+D Ventures: a value-add partner of TrustTech startups

Even though startup funding is constantly increasing, we see a lack of dedicated investors being active in the European TrustTech ecosystem.    

In response, G+D has set up a €50 million co-investment vehicle together with the European Investment Bank, the lending arm of the European Union, to address this gap: as G+D Ventures, we invest in early-stage startups based in Europe and active in TrustTech. We bring our expertise and network in this sector to the companies we finance.

Backed by the G+D group, one of Europe’s leaders in trust-based technologies and services, we can leverage our unique, global network (CISOs, academic institutions, customers, partners, and internal experts) and open the doors for our portfolio companies. Our team is composed of highly experienced investors, bringing decades of venture capital expertise in both financial and corporate settings.

Our approach in investment is to move quickly with a financial mindset, while leveraging all the strategic benefits of the G+D group.

The G+D Ventures team recently welcomed its fourth member, with the addition of Alberto Pérez Arranz as Investment Manager. He previously led the early-stage startup investments of Telefónica Germany in the DACH region, specializing in investing in the areas of AI and cybersecurity.

“Digitalization has played a key role for the majority of organizations for many years. As a result of these new digital practices, new security and privacy risks are impacting end users, companies, and institutions,” says Pérez Arranz. “TrustTech constitutes a horizontal layer and capability that can ensure greater trust, safety, and reliability across the majority of industries. TrustTech will be one of the segments that we expect to grow exponentially in coming years.

G+D Ventures Team
G+D Ventures Team: from left to right, Andreas Barthelmes, Assaf Shamia, Dr. Michael Hochholzer, and Alberto Pérez Arranz

Success stories of our partnerships with TrustTech startups

G+D Ventures has to date backed several TrustTech companies. One example is FNA (Financial Network Analytics), in which G+D Ventures invested in 2021. FNA offers an advanced network analytics and simulation platform, and works with a number of the world’s largest central banks, government authorities, commercial banks, and financial infrastructures.

In addition to FNA’s work in the SupTech area and in providing liquidity optimization technology for commercial banks, one major use case for its technology is in the stress testing of financial ecosystems at a macro level to be able to predict financial crises.

Alongside its investment, G+D Ventures also fostered a partnership between FNA and the G+D Filia® team that is currently developing a digital form of cash (Central Bank Digital Currency or CBDC). The partnership led to a joint go-to-market project for a CBDC Simulator that makes it possible, for the first time, to assess the risk of introducing a CBDC to market participants like commercial banks.

Kimmo Soramäki, CEO and Founder of FNA: “We are very happy to have G+D Ventures as our investor – the introduction to G+D’s Filia® team was highly valuable and significantly advanced the development of our simulation technology for CBDCs. In addition to the great connection to G+D, we appreciate the hands-on mentality of the G+D Ventures team and their relevant experience in the TrustTech space.”       

All-in-all, G+D Ventures thinks TrustTech plays a vital part in bringing more trust into the world. We will continue to add our value to that segment through the identification of outstanding TrustTech startups, partnering with them to provide both funding and our experience, industry network, and the support that comes with access to the wider G+D group.

Published: 03/01/2023

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