India’s startups have been struggling with an unfavourable funding environment in recent months, but more serious issues are now coming to light.
GoMechanic has laid off 70% of its employees and all but admitted to fraud in a stunning unravelling of the Sequoia-backed company. “We made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret,” said GoMechanic co-founder Amit Bhasin a LinkedIn post. “We got carried away. Our passion to survive the intrinsic challenges of this sector, and manage capital, got the better of us,” he added. Bhasin’ comments came after Sequoia had instituted a third-party audit into the company and its financials.
GoMechanic’s financial irregularities reportedly came to light when Softbank was looking to invest in the company, and was performing its due diligence. ET reported that the due diligence process revealed “glaring loopholes” in the company’s accounts and operations. The due diligence process, which was being performed by EY, revealed issues like fictitious garages, selective payments to certain garage units, and inflated revenue and user metrics.
“We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions,” said GoMechanic co-founder Amit Bhasin. “This restructuring is going to be painful and we will unfortunately need to let go of approximately 70 percent of the workforce. In addition, a third party firm will be conducting an audit of the business,” he added.
GoMechanic had been founded in 2016 by Amit Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa. Bhasin had an MBA from IIM Ahmedabad, while the other co-founders had engineering degrees. The company had built an online car servicing platform which help peopled to schedule their car servicing online. Over the years, GoMechanic had raised over Rs. 400 crore from marquee investors including Tiger Global, Orios Venture Partners, and Sequoia Capital.
Sequoia has now instituted an independent audit into the company, which makes GoMechanic the latest name a long list of startups that have been recently embroiled in controversies about misleading investors. A NYT report had claimed in 2020 that Oyo Rooms had created fake listings to impress investors. E-commerce startup Zilingo was also accused of similarly inflating metrics, and its CEO Ankiti Bose was asked to resign. BharatPe’s CEO Ashneer Grover was ousted after he’d allegedly created fake companies and generated fraudulent invoices to steal money from investors. Last year, Trell had also laid of hundreds of employees after irregularities about the firm’s finances had come to light.
This isn’t an India-specific phenomenon — many founders abroad have also been accused to misleading investors. Most recently, fintech app Frank’s founder Charlie Javice was sued by JP Morgan for misleading them with fake customer data and getting them to acquire her startup for Rs. 1,400 crore. FTX founder Sam Bankman-Fried is also being investigated for stealing user funds from his crypto exchange, and could face extended jail time. Most famously, Theranos founder Elizabeth Holmes was found to have faked test results to get investors to put money into her company, and is currently serving an 11-year jail term. All three of these founders had been a part of the prestigious Forbes 30-under-30 lists, which looks to recognize young founders who’ve achieved great things in the world of business. The cofounders of GoMechanic, incidentally, too were a part of the Forbes 30-under-30 list for their efforts in building the company. Time will tell how GoMechanic’s story unfolds, but it’s possible that young enthusiastic founders aren’t always sticking to the straight and the narrow as they try to turbocharge their businesses.