Car repair and servicing startup GoMechanic has approached car-selling marketplaces Cars24 and Spinny among others for a potential sale, multiple sources aware of the developments told Moneycontrol. This comes a week after GoMechanic’s co-founder Amit Bhasin admitted to having laid off about 70 percent of its staff and misreporting financial performance during an ongoing funding deal.
Now GoMechanic founders have sent proposals as a part of initial talks for a potential buyout to these unicorn companies, sources said. GoMechanic was last valued at $285 million and counts Sequoia Capital India, Tiger Global, Chiratae Ventures, Orios Ventures and venture debt firm Stride Ventures among its prominent investors.
“They have reached out to almost all the players in the ecosystem. They should also reach out to OEMs (original equipment manufacturers) and offline players. Equity investors have mostly written them off.
GoMechanic’s existing debt investors may salvage something out of this. They will either hawk the company as a whole or sell it as a sum of parts,” one of the people in the know told Moneycontrol.
The source added, “Either way, it will be a distress sale at a much lower valuation. Given that the founders themselves have admitted to the falsification, it will get difficult to price their assets at the moment.”
GoMechanic was last in talks to raise $75-80 million in a funding round led by Softbank and Malaysian sovereign fund Khazanah Nasional at a $600-650 million valuation. After the development broke last week following irregularities found in SoftBank’s due diligence report from EY, the startup’s existing investors have now reappointed EY to probe the matter.
Interestingly, both SoftBank and Sequoia are prominent backers of Cars24 too.
Spinny declined to comment on the developments. Queries sent to GoMechanic, Cars24 and Sequoia at the time of publishing went unanswered. This article will be updated with any comments from these companies.
“I am quite upset by the way things unfolded there. Hurts the whole ecosystem badly. Puts everyone in a bad light. Investors, customers, auditors etc., will trust less,” a prominent founder from the ecosystem said in the light of the ongoing events.
Another person said, "They have huge debt, the extent of falsification is yet to emerge as the EY report is not out. This will impact the entire startup ecosystem—trust will come down, time for diligence will go up."
According to sources, GoMechanic claimed that it would report a gross annual revenue of $40 million for FY23 (2022-23). The company’s filings with the Ministry of Corporate Affairs (MCA) sourced from Tofler show that GoMechanic had an operating revenue of Rs 90.5 crore or about $11.2 million for FY22 (2021-22), while its net loss stood at Rs 114.3 crore, ballooning by over 317 percent from the Rs 27.4 crore reported in FY21 (2020-2021).
The downfall
Founded in 2016 by Bhasin, Kushal Karwa, 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 of about 15 percent from these garages.
It currently has over 1,000 partner garages across 40 cities. GoMechanic also provides spare parts and accessories, sourcing them either from OEMs or from their own private labels.
Bhasin through a post on LinkedIn on January 17 said, "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."
He added, "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.”
A person in the know had then told Moneycontrol, “GoMechanic had reported overinflated numbers and fictitious garages. Some of its favoured partner garages were found to be making disproportionately more money during due diligence.”
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