On January 18, the co-founder of GoMechanic admitted to financial irregularities in the company in a LinkedIn post. Amit Bhasin, in a lengthy post, mentioned that the company is letting go 70 per cent of the workforce, and a third-party audit is in the pipeline. The post came after prospective investors at the venture found serious anomalies in the financial records of the company. GoMechanic was in talks with Softbank to raise $70-80 million, which is no longer happening as a result of the development.
GoMechanic is a network of car service centres that provides auto services such as repairing and carwashing through an online platform. The Gurgaon-headquartered startup is backed by venture capital firm Sequoia Capital.
According to a Bloomberg report, the irregularities were revealed in due diligence conducted by Ernst & Young on behalf of some prospective investors. The due diligence report stated that several GoMechanic service centres may have violated accounting norms to overstate revenue and divert funds. About 60 of the more than 1,000 service centres were violating accounting norms, the report stated. The investors informed the findings of the report to Sequoia Capital, which led to the development.
Bhasin said that GoMechanic was founded in 2016 to bridge the gap between process-oriented authorized service centres and cost-effective local workshops for people who were looking for a better car repair experience. He shared how in a short span, the company managed to bring 7 lakh customers on board.
However, the company owners, including him, got “carried away”. He said, “Our passion for surviving the intrinsic challenges of this sector, and managing capital, took the better of us, and we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret.”
While taking responsibility for the situation, he said the founders would reconstruct the business while looking for capital solutions. One of the aspects of the reconstructing business is to let go of 70 per cent of the workforce. Furthermore, a third-party firm is going to audit the company accounts soon. He added, “While the situation is far from anything we could have ever imagined for GoMechanic, we are working on a plan which would be most viable under the circumstances.”
SoftBank pulled out of the deal over irregularities in accounts
As per reports, GoMechanic was in talks to raise $75-80 million in a funding round by SoftBank. However, SoftBank pulled out of the deal over accounting irregularities. The bank was planning to invest around $35 million in the company via its vision fund along with the Malaysian sovereign fund Khazanah Nasional.
Last year GoMechanic was in talks to raise a round of funding led by Tiger Global at over $1 billion valuation, however, the talks did not materialize into a deal. Reportedly, that funding initiative had failed after some serious discrepancies were found during the due diligence process.
Meanwhile, it was reported that GoMechanic’s biggest investor Sequoia Capital launched a forensic audit of the company. A source was quoted by Inc42 stating that the company has a total loan of Rs 120 crore and a market pendency of Rs 40 crore. Notably, other companies in Sequoia India’s portfolio have been under the radar in the past. Companies like BharatPe, Trell and Zilingo have undergone forensic audits over similar reports of account irregularities.
Kushal Karwa, Nitin Rana and Rishabh Karwa, the three other co-founders besides Bhasin, have not commented so far on the current situation in the company.
Grapevine user hinted GoMechanic mess a week ago
A user on Grapevine, a social media platform for professionals, had hinted at the mess at GoMechanic a week ago.
In a post, user Layoffs said, “Gomechanic going bust? A little birdie tells me that go mechanic is on the verge of shutting shops. Any truth to that?”