Investors flag financial irregularities at healthtech startup Mojocare

Mojocare joins a list of other companies that have reported cases of corporate governance lapses in the past year or so

Major investors of Mojocare, a healthtech startup, have found financial irregularities at the company. The Bengaluru-based healthcare startup inflated sales bills and overstated revenues in order to meet its targets, sources told Moneycontrol, in what looked like yet another instance of a corporate governance lapse at an Indian startup.

The episode at Mojocare is a repeat of what had happened at GoMechanic, where the founders admitted that they got carried away and cooked their books to show higher sales figures. Similarly, even Rahul Yadav’s second startup, Broker Network  (4B Networks), Trell, Zilingo and BharatPe are a few other startups that have admitted to some other financial irregularities in the past year or so.

To figure the way forward, Mojocare’s major investors – which includes Chiratae Ventures, B Capital, Better Capital and several others – have already appointed Deloitte to carry out a forensic audit at Mojocare and the process has been in the works for the past 1-2 months, sources added.

“Mojocare’s founders have confessed to investors that they overstated sales because of pressure and revenue targets. For now, investors are not considering any legal action because there is no evidence of syphoning off of funds yet,” people aware of the developments told Moneycontrol.

In a joint statement issued on June 18, investors confirmed the developments.

“Major investors of Mojocare initiated a review of the company’s financial statements. While the analysis remains ongoing, initial findings have uncovered financial irregularities, and it has become apparent that the business model is not sustainable due to a variety of operational and market factors. As a result, Mojocare will be scaling down operations, and the investor group is working with the company through its transition,” it said.

All options on the table

Investors and Mojocare’s founders, Rajat G and Ashwin S, are currently exploring all options to salvage the company, including a sale, a merger or even a complete shutdown.

In case Mojocare has to shutter operations, it still has 60-80 percent of the $20.6 million that it raised in July 2022, Moneycontrol has learnt.

“Currently, investors and founders are discussing a sale of Mojocare’s assets which will help the company return about 50-60 percent of the funds it raised last year,” another person aware of the developments told Moneycontrol. Some of the remaining money will be also used to pay severance to employees, they added.

"At Mojocare, we are working closely with our investors to find a way forward. We categorically deny all accusations of money being taken out of the company. Together with our investors we are actively figuring out what's best for the business," a Mojocare spokesperson said in a statement to Moneycontrol.

Cost-cutting exercise

Mojocare, which offers personalised medical treatment for problems related to sexual wellness, women’s wellness, mental wellness and hair loss, has already fired about 200 employees from the organisation, and is left with only 40 staffers who will help the company scale down to the minimum, a person close to the company’s workings told Moneycontrol.

During the company’s fundraise, the founders had admitted that the space they were building in was already populated but bet on their differentiated approach, which has not yielded desired results.

The company however said the number of people affected was lower at about 150-170.

"...Despite our best efforts, our business fundamentals have not worked out over the past few months. In order to become more capital efficient, we have decided to rationalize costs. In order to prioritize profitability and sustainability, we must revert to operating as a small yet robust team, allowing us to figure out what's best for the company going forward," the company spokesperson told Moneycontrol.

The latest available data showed that while Mojocare’s revenue had jumped from Rs 30 lakh in FY21 to Rs 12.1 crore in FY22, but its losses also climbed from Rs 1.1 crore to Rs 5.5 crore during the same period, as per Tracxn.

Founded during the pandemic by an ex-Chiratae Ventures employee, Mojocare has raised about $24 million so far and a valuation of around $68 million, as per data available on Tracxn.

Mojocare's Cap Table

Founders, Rajat G and Ashwin S, hold about 48 percent of Mojocare while Chiratae had around 14 percent ownership in the company, as per Tracxn data. B Capital held around 10 percent, while other investors accounted for the remaining ownership in Mojocare, data showed.

Along with Chiratae Ventures, B Capital and Better Capital, Peak XV Partners (formerly called Sequoia Capital India) is also an investor in the health and wellness startup.

Deloitte, Chiratae Ventures and B Capital did not respond to Moneycontrol's queries at the time of publishing this story.