As the Sequoia India-backed startup struggles with funding, Gomechanik has laid off 70% of its workforce after existing and prospective investors found the founders misinformed.
The move comes as Gurgaon-headquartered Gomechanik, which offers car services such as repairs and car washes, has been struggling to raise funds for more than a year despite being in advanced talks with several investors.
Gomechanic was in talks to raise more than $1 billion in a round of funding led by Tiger Global early last year, TechCrunch previously reported. He said the talks did not enter into negotiations after some differences emerged during the due diligence process.
Gomekanik later joined several investors, including Malaysia’s Kazana, to raise a larger round. Kazanah was in position to lead the round and SoftBank was looking to participate.
This new round is not going ahead as serious discrepancies have been found in the books, two sources told reporters on condition of anonymity.
An EY study of the startup’s seven-year history found several issues in due diligence related to recent funding, including inflated earnings and some of the pitches were fictitious, two sources said.
Controversy at the startup — which is rapidly running out of cash in the bank and will soon need fresh liquidity to survive, according to a source familiar with the matter — is the latest headache for Sequoia India’s most influential investor. South Asian market. Zilingo, BharatPe and Trell, three other Sequoia India-backed startups, have had governance and audit issues in the past year.
Chirata Ventures, another investor in Gomechanik, was looking to sell some of its shares for $700 million a few months ago, according to another source familiar with the matter.
GoMechanic’s cap table, which raised $62 million and was ultimately valued at $283 million (after finance). (Info: Tracxn)
In a joint statement, GoMechanic investors said the startup’s founders had recently been notified of “serious errors in the company’s financial reporting.”
“We are deeply saddened by the fact that the founders have admitted to unknowingly the facts of revenue inflation. This was all done by the investors. The investors have jointly appointed a third-party firm to investigate the matter in detail and we will work together to decide the company’s next steps,” he added.
In a LinkedIn post on Wednesday, GoMechanic founder Amit Bhasin said the startup “made serious errors in judgment as we pursued growth at all costs, particularly with respect to financial reporting, which we deeply regret.” (In an updated LinkedIn post, Bhasin edited out the word grave.)
“We take full responsibility for this current situation and have unanimously decided to restructure the business while we seek capital solutions. This restructuring will be very painful and unfortunately we will need to let go of approximately 70 percent of our workforce. In addition, a third-party firm will conduct an audit of the business. The situation is good for Go Mechanic.” Although it was far from anything we could have imagined, we came up with a very viable plan under the circumstances.
The Gurgaon-headquartered startup has told its remaining employees to work without pay for three months, Indian news outlet The Morning News reported on Tuesday.
The story has been updated with additional details, including comments from GoMechanic’s founder and investors.
