EY is said to allege Sequoia-backed GoMechanic inflated revenue

Due diligence conducted by EY for prospective GoMechanic investors alleged that the Indian auto-services firm backed by Sequoia Capital India had inflated revenue, according to people familiar with the matter.

EY’s research alleged that about 60 of the more than 1,000 GoMechanic service centers may have violated accounting norms to overstate revenue and divert funds, the people said, asking not to be identified discussing sensitive information. The investor group that hired EY pulled out of talks to invest in GoMechanic and informed Sequoia about the lapses, the people said.

Spokespersons for EY, GoMechanic and Sequoia didn’t respond to emails, phone calls and text messages from Bloomberg News seeking comment.
The Gurugram-based company was founded in 2016 by four friends including Kushal Karwa and Amit Bhasin.

Also Read | GoMechanic founder admits to financial reporting errors, to lay off 70% of workforce

“We made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret,” Bhasin said in a LinkedIn post Wednesday, without sharing details. “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% of the workforce. In addition, a third party firm will be conducting an audit of the business.”

Morning Context had previously reported about the layoffs.

GoMechanic, which offers everything from mechanics to carwashing services on an app, bills itself as having India’s largest auto service center network. With its funding round in jeopardy, the startup is now facing a cash crunch, the people said. It’s another headache for Sequoia’s India business after backing Zilingo Pte and BharatPe, which both saw founders depart last year amid allegations of financial irregularities.