GoMechanic founder Amit Bhasin has admitted to financial reporting errors at the Sequoia-backed car repair startup and stated that the cash-strapped company will lay off roughly 70% of its workforce while also having its accounts audited by a third party.
"As entrepreneurs, we identify problems, come up with solutions, and explore every opportunity to grow those solutions to meet unmet needs. But in this instance, we got carried away," said Bhasin in a LinkedIn post on January 17.
"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," Bhasin added.
Bhasin also said that the company will seek "capital solutions." GoMechanic was in talks to raise $75-80 million in a funding round led by SoftBank and Malaysian sovereign fund Khazanah Nasional, but the deal was called off due to accounting irregularities, according to people with knowledge of the matter.
SoftBank was in talks to invest about $35 million in the company through its vision fund, with participation from Khazanah and several others.
“GoMechanic had reported overinflated numbers and fictitious garages. Some of its favored partner garages were found to be making disproportionately more money during due diligence,” a person in the know said.
Queries sent to GoMechanic, and Sequoia remained unanswered. SoftBank did not comment on the development.
The startup's investors in a joint statement said, "The investors of GoMechanic were recently made aware by the company’s founders of the serious inaccuracies in the company’s financial reporting. We are deeply distressed by the fact that the founders knowingly misstated facts, including but not limited to the inflation of revenue, which the founders have acknowledged. All of this was kept from the investors."
"The investors have jointly appointed a third party firm to investigate the matter in detail, and we will be working together to determine next steps for the company,” they added.
GoMechanic will be the fourth Sequoia Capital-backed startup to come under fire for accounting irregularities. In 2022, financial services unicorn BharatPe, Singapore-based business-to-business (B2B) e-commerce startup Zilingo, and social commerce startup Trell were accused of accounting irregularities.
Meanwhile, Bloomberg reported that EY's research suggested that 60 of the more than 1,000 GoMechanic service centres may have violated accounting standards to overstate revenue and divert funds.
Founded in 2016 by Kushal Karwa, Amit Bhasin, Rishabh Karwa, and Nitin Rana, GoMechanic operates a network of partner garages or workshops that provide quality car repairing and servicing at much lower rates than automakers' service centres. GoMechanic charges a commission from these garages.
As per media reports, it currently runs over 900 garages in more than 40 cities. Abhishek Mohan, a partner at Sequoia Capital, is currently a member of the GoMechanic board of directors. Mohan, like the company's co-founders Karwa and Bhasin, is an IIM alumnus.
Prior to this round, GoMechanic was looking to raise a similar funding round from Tiger Global in early 2022 at a valuation of around $1-1.2 billion, which was subsequently cancelled. The latest round to be led by SoftBank was expected to happen at a valuation of about $600-$650 million, or nearly half of its previous ask, sources said.
The startup had last raised about $42 million in a Series C round at a valuation of about $325 million in June 2021, led by Tiger Global Management and participation from Sequoia Capital India, Orios Venture Partners and Chiratae Ventures.
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