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PRAETORIAN CASE STUDY
Attracting investors with sound financials & processes
Introduction
Praetorian wanted to make a strong impression on potential investors, but its financials needed some polish to inspire confidence for equity funding. That's where Embark enters, ready, willing, and able to address critical accounting and finance needs, paving the way for funding success.
Our Solutions
Embark's Accounting & Reporting expertise, PE/VC Investment guidance, and Office of the CFO services helped Praetorian build a financial narrative that investors couldn't resist.
Index
The “Big Wins”
1. Embark helped Praetorian prepare its financials and processes for what would ultimately be a successful first round of PE funding.
2. From audit readiness to stock comp to revenue, Embark seamlessly executed on Praetorian's evolving needs on their path to securing PE funding.
Our clients are happy. We’re happy. Everybody’s happy.
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We have had great experience with highly competent people in all projects we have engaged them for. In my experience the competence of the folks has been hard to replicate consistently with other companies.
Melanie Merritt, Corporate Controller of Helmerich & Payne, Inc.
The team is on top of it. They have been understanding and flexible with pricing and timing the engagement. The team, at all levels, is very competent in regards to the project. They stay in constant communication and engage us in a very personal yet professional manner.
Terry Nwosuocha, CPA - Senior Director of Financial Reporting & Accounting of SecurityScorecard
Amazing supportive attitude supported by a deep and broad knowledge and skill. Our requirement is always 1000% fulfilled by Embark team.
Bruce Suzuki, Lyseon North America Inc. (LNAI)
Embark sends the best people, so much so that it makes us think that these people grow on trees. We know they don't and we are grateful for all Embark does for our team.
Brandon Walls, CPA - Vice President, Controller of Ashford Hospitality Trust
Executive summary
While preparing for a large round of equity funding, Praetorian identified several weaknesses in its existing accounting processes which, if left unchecked, could raise questions during investor due diligence. Management engaged with Embark to evaluate and address audit readiness, its stock compensation plan, and other critical accounting and finance needs that would all be essential for securing investment capital.
About the client
Praetorian is a privately-owned cybersecurity company based in Austin. Founded in 2010, the firm is a leader in the information security space, providing innovative solutions across an ever-evolving digital threat landscape. Praetorian closed on its Series A funding in February 2020.
Challenges & objectives
Like many companies trying to attract investors, Praetorian was a smaller, younger organization with lean operations. As a result, they were comfortable with basic accounting processes but lacked sufficient expertise on more technical and complex aspects of accounting, particularly regarding their stock compensation plan. Since the company was preparing for their first round of funding, management established some critical objectives to achieve during preparation:- Review previous third-party accounting & finance work to ensure compliance and accuracy
- Examine current processes and procedures, correcting any issues identified
- Revisit calculations involving their stock comp plan and adjust as necessary
- Solidify and substantiate their financial numbers in advance of an external audit
- Establish more rigorous accounting and reporting to comply with the needs & expectations of investors and auditors
How Embark helped
Staying within Praetorian’s budget was imperative for its management. To accommodate their needs, Embark completed the engagement in separate phases, focusing on particular objectives and issues for each over the course of a year.
Phase one
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Conducted walkthroughs to assess the effectiveness of their processes
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Identified key areas that required documentation for the audit and all necessary supporting information
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Reviewed previous outsourced work and identified issues that required resolution
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Provided guidance on audit preparation
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Reviewed and streamlined its revenue process and documented it with a new flowchart
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Ensured its chart of accounts was properly aligned to GAAP and reporting requirements
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Drafted a memo on its cost of goods sold policy and included relevant guidance to justify the high margins typical of a services firm
Phase two
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Reviewed calculations used within the stock compensation plan for compliance with GAAP, determined the correct accounting, and made adjustment entries to correct the account
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Built a model for the stock comp plan to quickly categorize expenses by COGS or SG&A and determine the appropriate monthly journal entry to record
Phase three
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Reconciled third-party administrator activity for all stock option exercises
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Researched journal entry treatment in the stock comp options
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Created a repeatable monthly schedule to simply download and plug-in activity from a third-party administrator, all within their existing accounting & stock comp software
Phase four
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Drafted an ASC 606 implementation memo, covering the company’s revenue recognition process and ensured its readiness for the audit
Results: Praetorian successfully closed its initial funding
By the time Embark completed the engagement, Praetorian was well-equipped for an investor’s microscope. Balancing budget constraints and a variety of needs to address, Embark helped Praetorian prepare its financials and processes for what would ultimately be a successful first round of private equity funding.
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