GoMechanic has laid off 70% of its workforce as the Sequoia India-backed startup struggles with funding issues after its existing and prospective investors discovered that the founders had misrepresented the facts.
The move comes as Gurgaon-based GoMechanic, which offers car services such as repair and car washing, has struggled to raise funds for more than a year, despite discussions with several investors being at an advanced stage.
GoMechanic was in talks early last year to raise a funding round led by Tiger Global with a valuation of more than $1 billion, TBEN previously reported. The talks did not lead to a deal after a discrepancy was found during the due diligence process, a source said.
GoMechanic later teamed up with a number of other investors, including Malaysia’s Khazanah, to raise a grand round. Khazanah would lead the round, while SoftBank also wanted to participate.
This new round is no longer going ahead because serious discrepancies have been found in the books, said two sources, who asked for anonymity in a conversation with the press.
An investigation into the seven-year-old startup by EY as part of its due diligence for its recent funding consultation found numerous issues, including overrevenues and that some garages were fictitious, two sources said.
The debacle at the startup — which is quickly running out of money in its bank and will soon need another infusion to survive, according to a source familiar with the matter — is the latest headache for Sequoia India, its most influential venture investor in the South Asian market. Zilingo, BharatPe and Trell, three other Sequoia India-backed startups, have faced governance and auditing issues over the past year.
Chiratae Ventures, another investor in GoMechanic, wanted to sell some of its shares for a value of $700 million a few months ago, according to another source familiar with the matter.
In a joint statement, GoMechanic investors said the startup’s founders recently informed them of the “serious inaccuracies in the company’s financial reporting.”
“We are deeply saddened by the fact that the founders have knowingly misrepresented facts, including but not limited to revenue inflation, which the founders have acknowledged. All this was kept from the investors. The investors have jointly appointed an outside firm to investigate the matter in detail, and we will work together to determine the next steps for the company,” they added.
In a LinkedIn post on Wednesday, GoMechanic co-founder Amit Bhasin said the startup “made serious errors of judgment when we followed growth at all costs, especially with regard to financial reporting, which we deeply regret.” (In an updated LinkedIn post, Bhasin omitted the word grave.)
“We take full responsibility for this current situation and have unanimously decided to restructure the company as we look for capital solutions. This restructuring will be painful and we will unfortunately lose approx. 70 percent of the working population. In addition, an external firm will conduct an audit of the company. While the situation is far from anything we could have ever imagined for Go Mechanic, we are working on a plan that would be the most feasible under the circumstances.
The Gurgaon-based startup has also told remaining staff to work unpaid for three months, Indian news outlet The Morning Context reported Tuesday.
The story has been updated with additional details, including comments from GoMechanic’s co-founder and investors.