Another Sequoia Startup Faces The Heat: GoMechanic Admits False Financial Reporting

A day after reports emerged of automobile after-sales service startup GoMechanic laying off around 70% of its workforce, its cofounder Amit Bhasin publicly admitted to committing “errors in judgment” in regard to financial reporting while trying to pursue growth.

“Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret,” Bhasin said in a post on LinkedIn. 

With this, GoMechanic has become the latest Sequoia Capital-backed startup to take the employee layoff route in recent days, joining the names like Ola, Rebel Foods, and Bounce, among others. 

Besides, with questions being raised around its business financials, GoMechanic has joined the list of Sequoia Capital-backed startups, including BharatPe, Trell, and Zilingo, which made the headlines for the wrong reasons in 2022, including issues with their corporate governance and financial misreporting.

Sources told Inc42 that the startup “fictionalised its revenue”.

GoMechanic’s Bhasin in his post said that a third-party firm will conduct an audit of the business.

“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. 

Founded in 2016 by Bhasin, Kushal Karwa, Rishabh Karwa, and Nitin Rana, GoMechanic is primarily a digital car maintenance and servicing app which connects car owners with repair service providers in their area.

Confirming that the startup laid off 70% of its workforce, Bhasin said, “We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions.” 

Employees across departments were impacted by the layoffs, and Bhasin said that the restructuring would be “painful”. Besides the layoffs, the startup has reportedly also directed the remaining employees to work without pay for the next three months. 

Other than Sequoia Capital, GoMechanic is backed by the likes of Tiger Global, Orios Venture Partners, and Chiratae Ventures. The startup had last raised a $42 Mn Series C funding round from these investors in 2021.

Unsuccessful Funding Attempt 

Amid the controversy, reports have emerged that GoMechanic was in talks to raise a new funding round led by Tiger Global early last year. However, the discussions fell through as discrepancies were found in its accounts during the due diligence process.

Citing sources, the Economic Times reported that SoftBank perhaps pulled out from investing in the startup after due diligence conducted by EY brought the issues in GoMechanic’s accounts and operations to light.

GoMechanic was not immediately available to respond to Inc42’s queries on the issue.

Sequoia Capital, which has been an active investor in the Indian startup ecosystem, finds itself in an uneviable position as it has been the common link between most of the Indian startups which have been under the spotlight since last year for corporate governance issues, financial scandals, legal battles, and more.

Trying to clarify its position, the venture capital firm, in a blog post last year, said, “Recently some portfolio founders have been under investigation for potential fraudulent practices or poor governance. These allegations are deeply disturbing. We have always strongly encouraged founders to play the long game. We focus on the enduring, and discourage focussing on vanity metrics.” 

“We will continue to respond strongly when we encounter willful misconduct or fraud,” it added.

The latest controversies around GoMechanic erupt at a time when the BharatPe saga is still on with the fintech startup and its former employees fighting multiple cases against each other in courts.

Notably, most of the issues at the Sequoia-backed startups came to light around or after the onset of funding winter last year which dried up funding. This has also highlighted the need for founders and investors to put in place strong corporate governance measures.