An audit of Indian automobile after-sales service startup GoMechanic revealed the company cooked the books. It now needs downsizing among its 1,000 employees and restructuring its business.
Last year, the Indian startup GoMechanic ambitioned to become a unicorn, a company valued at more than one billion dollars. It now needs to let go most of its workforce as the company actually inflated revenue.
GoMechanic was created in 2016 in Gurgaon, a northern city of one million people in the state of Haryana, by four friends Kushal Karwa, Nitin Rana, Rishabh Karwa and Amit Bhasin. The startup connects car owners with partner garages or workshops in their area, offering car repair and services. It also sells spare parts and car accessories on its website.
In June 2021, GoMechanic raised 42 million dollars in a Series C funding from Sequoia Capital India, Tiger Global, Orios Venture Partners and Chiratae Ventures. The company was then valued at 325 million dollars.
The company was also in talks early last year to raise another round of funding led by Tiger Global that would have valued GoMechanic at 1.2 billion dollars. But they did not materialize into a deal after some discrepancy was found during the due diligence process, according to TechCrunch.
Founders were still looking for more investors. But it emerged that they actually inflated revenues and cooked books.
The startup failed to raise further funds as a due diligence audit from EY found multiple issues. The audit alleged that some garages, 60 of the more than 1,000 GoMechanic service centers, may have violated accounting norms to overstate revenue and divert funds, Bloomberg reports. Some garages were even fictitious.
GoMechanic cofounder Amit Bhasin on a Linkedin post shared January 18 regrets they “got carried away” as they “made errors in judgment as [they] followed growth at all costs, including in regard to financial reporting.” He edited his post in which he originally mentioned they “made grave errors.”
While cofounders “take full responsibility” for the situation, the company therefore needs restructuring and will let go about 70 percent of its workforce.
GoMechanic investors in a joint statement shared that the startup’s founders recently informed them of the “serious inaccuracies in the company’s financial reporting. […] We are deeply distressed by the fact that the founders knowingly misstated facts, including but not limited to the inflation of revenue, which the founders have acknowledged. All of this was kept from the investors.”
A third-party firm will be conducting an audit of the business. The company’s survival is reportedly at stake as it is running out of cash quickly. The Morning Context even reported that the remaining employees were asked to work without pay for three months.
It’s another blow for investing firm Sequoia Capital India which last year also saw the founders of two companies they backed, Zilingo Pte and BharatPe, depart amid allegations of financial irregularities.
