Why IronNet Ran Out of Cash, Filed For Chapter 11 Bankruptcy

Now that it’s bankrupt, there’s a simple explanation for why cybersecurity company IronNet had to suspend operations: “Simply put, the company ran out of money.”

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The longer explanation, detailed by President and CFO Cameron Pforr in a court filing Thursday, is that the Washington D.C.-area firm experienced delays in finalizing new business and collecting accounts receivable from foreign governments, including Bahrain. The last straw came when Amazon Web Services cut off the company over unpaid bills, making it impossible for IronNet to operate its network detection and response platform.

A “cloud of uncertainty” strained IronNet’s cash flows and negatively affected liquidity to the point where the company, once valued at $1.2 billion, couldn’t sustain itself, Pforr wrote. The company is $480,000 in the hole with AWS and the cloud computing giant says it would need another $450,000 by Nov. 2 in order for the company to remain on its servers.

C5 Capital and ITC Global Advisers have extended the company founded by retired four-star Army Gen. Keith Alexander one final lifeline, providing $1.5 million to file for Chapter 11 bankruptcy and fund a 60-day marketing and sales process to test the value of IronNet’s assets and equity in the marketplace. Pforr said the restructuring would de-leverage IronNet’s balance sheet and position it for future success.

The debtor in possession “lender proposed a holistic restructuring,” Pforr wrote Thursday. But, “as the Company finalized terms with the DIP Lender, it experienced further operational challenges, including AWS shutting down its service.”

The Road to Financial Ruin

In response to significant financial struggles and tightening liquidity, Pforr said IronNet on July 11 agreed to be taken private by C5 Capital and replace Alexander as CEO with former Houghton Mifflin Harcourt CEO Linda Zecher. By the end of August, some of IronNet’s board members resorted to loaning the company money to make payroll, according to Pforr (see: IronNet CEO Gen. Keith Alexander Out Amid Take-Private Deal).

In early September, IronNet furloughed nearly all of its roughly 80 full-time and part-time employees, leaving the company with just six full-time, salaried workers as well as one part-time employee paid hourly. Pforr said IronNet explored financing sources throughout September that would allow it to keep serving clients and take on new customers, deleverage its balance sheet and protect its intellectual property (see: IronNet Furloughs Almost All Employees, Curtails Operations).

At the end of September, IronNet announced that it was ceasing all activities, terminating its remaining employees and likely filing for a Chapter 7 liquidation due to the apparent unavailability of additional liquidity sources. On the same weekend IronNet announced this, Pforr said the company held talks with parties who were interested in funding a reorganization before the AWS shutdown derailed a deal (see: IronNet Ceases Operations, Terminates All Remaining Staffers).

What Went Wrong with AWS

Pforr said IronNet began falling behind on vendor payments starting 12 months ago – including AWS – after encountering liquidity issues. On Sept. 29, 2023, the cloud computing giant shut down IronNet’s access and customer instances, citing a past-due payment of $18,000.

Amazon in September retained the entirety of an overdue payment of $1.8 million made by the government of Bahrain transmitted to IronNet through AWS Marketplace. The cloud giant shut down IronNet’s access anyway, citing the overdue $18,000. IronNet remitted the payment a half hour after going dark, but AWS didn’t restore service.

Pforr said AWS insisted that IronNet seek Chapter 11 bankruptcy protection before being willing to take payment. Under the reinstatement agreement, IronNet must immediately pay AWS nearly $480,000 for overdue invoices and pay September’s invoice for more than $450,000 no later than Nov. 2.

“Access to the AWS platform is critical to the company’s business and the company cannot operate or maintain value without it,” IronNet’s proposed counsel wrote in a filing Thursday. “Without access to the cloud on AWS, the company does not have access to customer data and cannot operate its Collective Defense Platform.”

AWS didn’t immediately respond to an Information Security Media Group request for comment. Alexander, who remains chair of IronNet’s board of director, is also a member of Amazon’s board of directors and sits on the retail and cloud computing giant’s audit committee.

Now that the prospect of Chapter 11 reorganization is on the table, IronNet has petitioned the court to re-hire the approximately 80 employees who had recently been terminated at their previous wages and benefits. IronNet spends approximately $1.07 million each month on wages and salaries for full-time and part-time employees.

“Understanding of the Debtors’ infrastructure, business operations, and customer and vendor relations are essential to, among other things, the success of these chapter 11 cases,” IronNet’s proposed counsel wrote. “Without the continued service and dedication of the employees, it will be difficult, if not impossible, to operate the Debtors’ business without an unexpected or inopportune interruption.”