The investment DD was being conducted by EY India, which first highlighted issues like fictitious garages, selective payments to certain garage units and overall inflated revenue and user metrics in the Sequoia Capital and Tiger Global-backed startup, people aware of the matter said.
GoMechanic aggregates car servicing garages on its platform across the country. It is present in over 30 cities with over 600 garages, per the company even as it looked to expand overseas.
SoftBank had long engaged with GoMechanic for a potential funding deal over the past year but the talks had fallen through due to a valuation mismatch. The Japanese investment firm restarted the discussions six months ago with a potential $30-35 million investment at a much lower valuation of $600-650 million, as per people in the know of the matter.
An emailed query sent to GoMechanic, Sequoia Capital India, SoftBank and EY India didn’t elicit an immediate response on Wednesday morning at the time of filing this article.
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.
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The Morning Context reported on Tuesday that GoMechanic has fired 70% of its staff even as its current investor Sequoia has initiated a forensic probe into the company’s operations. On Wednesday morning, Amit Bhasin, cofounder at Gurugram-based 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 70 percent of the workforce. In addition, a third party firm will be conducting an audit of the business,” Bhasin’s post added.
Besides Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa are the other cofounders of GoMechanic.
Founded in 2016, GoMechanic has in all raised around $42 million in total funding and is valued at around $283 million. Besides Sequoia and Tiger, Orios Venture Partners, Chirate Ventures and Pawan Munjal Family Trust are among its investors, according to Tracxn–a data platform for privately-held startups.