Sequoia-backed GoMechanic cuts 70% of jobs amid ‘serious errors’ in financial reporting

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GoMechanic has laid off 70% of its workforce as the Sequoia India-backed startup grapples with a lack of funding after existing and potential investors found the founders misrepresented facts.

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The move comes as Gurgaon-headquartered GoMechanic, which provides auto-services such as repairs and car washes, struggles to raise funds for over a year despite reaching advanced stages of discussions with several investors. doing.

TechCrunch previously reported that GoMechanic was in talks to raise a round of funding led by Tiger Global early last year at a valuation of over $1 billion. A source said the talks did not turn into a deal after some discrepancy was found during the due diligence process.

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GoMechanic subsequently worked with several other investors, including Malaysia’s Treasury, to raise a larger round. Treasury was in a position to lead the round while SoftBank was also looking to participate.

This new round is no longer going ahead as serious discrepancies have been found in its books, said two sources, speaking to the press requesting anonymity.

Two sources said a recent probe into the seven-year-old startup by EY as part of due diligence for funding discussions found several issues including inflated revenue and some garages being fictitious.

According to a source familiar with the matter, the debacle at the startup – which is fast draining cash in the bank and needs a fresh infusion soon to survive – is the latest headache for Sequoia India, one of the most influential ventures in the world. is an investor. South Asian market. Zilingo, BharatPe and Trell, three other Sequoia India-backed startups, had governance and auditing issues over the past year.

Chirate Ventures, another investor in GoMechanic, was looking to sell some of its shares a few months ago at a $700 million valuation, according to another source familiar with the matter.

GoMechanic’s cap table. (Data: Traxn)

In a joint statement, the GoMechanic investors said the startup’s founders recently notified them of “serious inaccuracies in the company’s financial reporting.”

“We are deeply distressed by the fact that the Founders intentionally misrepresented facts, including but not limited to inflation of revenue, which the Founders have admitted. All of this was kept from the investors. The investors jointly A third-party firm has been appointed to conduct a detailed investigation of this matter, and we will work together to determine next steps for the company.”

In a LinkedIn post on Wednesday, GoMechanic co-founder Amit Bhasin said the startup “made serious errors in judgment as we followed the development at all costs, particularly with regard to financial reporting, which we deeply regret.” ” (In an updated LinkedIn post, Bhasin edited out the word serious.)

“We take full responsibility for this current situation and have unanimously decided to restructure the business while looking for capital solutions. This restructuring is going to be painful and we will unfortunately have to let go of approximately 70 per cent of the workforce. Also , a third party firm will audit the business. While this was never the situation we envisioned for Go Mechanic, we are working on a plan that will be most feasible under the circumstances.

Indian news outlet The Morning Context reported on Tuesday that the Gurgaon-headquartered startup has asked the remaining employees to work without pay for three months.

The story was updated with additional details, including comments from GoMechanic’s co-founder and investors.

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