GoMechanic’s Fundraise Falls as Audit Flage Accounting  Lapses

SoftBank is learnt to have pulled out from a funding deal in car servicing startup GoMechanic after more than a year of intermittent discussions, as due diligence (DD) brought to light glaring lapses in the company’s accounts and operations, people aware of the matter said.

Malaysia’s sovereign fund Khazanah, which was co-leading the $70-80 million financing round, also stepped away from the Gurugram-based startup’s fundraise triggering a series of developments at the company in the past few weeks.

On Wednesday, one of the founders, Amit Bhasin, confessed to financial lapses, laying off 70% of its staff and initiating an audit of the firm.

The investment diligence which was being conducted by EY India for Soft- Bank and Khazanah jointly, high- lighted issues like fictitious garages, selective payments to certain garage units, and discrepancies in revenue and user metrics at the Sequoia Capital and Tiger Global-backed company, according to the people cited above. technology firm first

The Japanese engaged with GoMechanic in early 2022 for a potential funding deal but the talks had fallen through due to a valuation mismatch.

“The company met SoftBank’s founder Masayoshi Son and the deal was agreed upon-in principle. But Soft- Bank did not agree to the valuation demand of $1.2 billion, they were willing to offer $850-900 million…,” said one person on the condition of anonymity as the talks were private. SoftBank restarted the discussions

about six months ago with a potential $30-35 million investment at a much lower valuation of $600-650 million, sources said. An emailed query sent to GoMechanic, Sequoia Capital India, SoftBank, Khazanah and EY India didn’t elicit an immediate response as of press time Wednesday. For Sequoia, this is the fourth startup after BharatPe, Zilingo and Trell where financial irregularities have come to the fore during a due diligence process.

On Wednesday morning, Bhasin at GoMechanic, said in a LinkedIn post, “Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret.” He said the founders of the firm got ‘carried away.’ “We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions. This restructuring is going to be painful, and we will unfortunately need to let go of approximately workforce. In addition, 70% of the a third-party firm will be conducting an audit of the business,” Bhasin’s post added. He later edited the post and removed the word ‘grave’. Besides Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa are the other cofounders of GoMechanic. However, sources aware of the matter added that Bhasin and his cofounders confessed to investors last week about reporting inflated numbers to them. “The GoMechanic team said whatever numbers they have been presenting to the board is not true and that they were inflated,” said one person in the

know. Founders of GoMechanic have. now been sent on a leave of absence till the forensic audit report is sub- mitted. After Bhasin’s LinkedIn post, the company also held a town- hall with its staff on Wednesday apprising them of the changes at the firm including the layoffs.

The investors are yet to get a firm grip on the scale of financial misappropriation. The ongoing forensic audit initiated by the present investors is also being conducted by EY which was behind the diligence report. The audit is expected to close in a few weeks from now, these sources added. “The investors of GoMechanic were recently made aware by the company’s founders 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. The investors have jointly appointed a third- party firm to investigate the matter in detail, and we will be working together to determine the next steps for the company,” a joint statement from the company’s investors said.

Sequoia Capital holds 27%, Tiger Global owns 10%, Orios Venture Partners has a 17% shareholding while Chiratae Ventures has a 10% stake in the company. The list of investors also includes Strides Ventures, which has disbursed debt to the troubled startup. S-ET

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