Sequoia-backed GoMechanic cuts 70% of jobs amid ‘serious errors’ in financial reporting
GoMechanic has laid off 70% of its workforce as the Sequoia India-backed startup grapples with a funding crisis after existing and potential investors discovered the founders had inaccurate facts.
The move comes as Gurgaon-headquartered GoMechanic, which offers automotive services such as car repair and wash, has struggled to raise funds for more than a year despite reaching milestones. progress of deliberations with several investors.
GoMechanic was in talks early last year to raise a more than $1 billion Tiger Global-led funding round, TechCrunch reported earlier. The talks failed to materialize into a deal after a discrepancy was discovered during the due diligence process, a source said.
GoMechanic then engaged with a number of other investors, including Malaysia’s Khazanah, to raise a big round. Khazanah was positioning itself to lead the round while SoftBank was also looking to participate.
This new cycle is no longer ongoing as serious discrepancies were found in his books, two sources said, requesting anonymity from the press.
An investigation of the seven-year-old startup by EY as part of due diligence for the recent funding deliberation revealed dozens of issues, including inflated revenue and that some garages were fictitious, two sources said.
The startup’s debacle – which is rapidly running out of cash in its bank and needs a new infusion soon to survive, according to a source familiar with the matter – is the latest headache for venture capitalist Sequoia India. most influential in the South Asian Market. Zilingo, BharatPe and Trell, three other startups backed by Sequoia India, have had governance and audit issues over the past year.
Chiratae Ventures, another GoMechanic investor, was looking to sell some of its shares a few months ago at a valuation of $700 million, according to another source familiar with the matter.
In a joint statement, GoMechanic investors said the startup’s founders recently informed them of “serious inaccuracies in the company’s financial reporting.”
“We are deeply distressed that the Founders knowingly misrepresented facts, including but not limited to earnings inflation, which the Founders have acknowledged. All of this has been withheld from investors. Investors have jointly appointed a third-party company to investigate the matter in detail, and we will work together to determine next steps for the company,” they added.
In a LinkedIn post on Wednesday, GoMechanic co-founder Amit Bhasin said the startup had made “serious errors of judgment as we tracked growth at all costs, especially with regards to financial reporting, which we deeply regret”. (In an updated LinkedIn post, Bhasin deleted the word serious.)
“We take full responsibility for the current situation and have unanimously decided to restructure the business while we look for capital solutions. This restructuring is going to be painful and we will unfortunately have to let go of approx. 70% of the hand In addition, a third-party company will perform an audit of the business. Although the situation is far from what we could have imagined for Go Mechanic, we are working on a plan that would be the most viable under the circumstances. .
The Gurgaon-based startup has also told remaining staff to work without pay for three months, Indian newspaper The Morning Context reported on Tuesday.
The story has been updated with additional details, including comments from GoMechanic’s co-founder and investors.