SUMMARY
The complaint with EOW has been filed by Orios, Peak XV, Tiger Global and Chiratae
GoMechanic came under the corporate governance spotlight in January 2023 after public admissions of misreported revenue
The startup was acquired by a consortium led by Lifelong Group, a majority shareholder in GoMechanic competitor Servizzy
gomechanic
investors have approached the Economic Offences Wing to probe the role of the company’s four cofounders in misreporting financials and any potential misappropriation of funds.
In January 2023, GoMechanic was hit by controversy after it emerged that the auto services startup’s founders had admitted to misleading investors with fake revenue figures.
Confirming the development, Orios Venture Partners’ general partner Rehan Yar Khan told Inc42, “The complaint with EOW has been filed by Orios, Sequoia [Peak XV], Tiger [Global] and Chiratae. As investors in GoMechanic, we are the aggrieved parties and are pursuing this legally.”
Other sources close to the investor group also told us that the EOW has been engaged to look into how the revenue inflation by GoMechanic’s founders might have resulted in the misappropriation of funds.
The startup came under the corporate governance spotlight in January 2023 after cofounder Amit Bhasin publicly admitted to committing “errors in judgement” 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 judgement as we followed growth at all costs, including in regard to financial reporting, which we deeply regret,” Bhasin had said in a LinkedIn post at the time.
The company was founded in 2016 by Amit Bhasin, Kushal Karwa, Rishabh Karwa and Nitin Rana. Besides Bhasin’s public confession, the other founders of the company were also said to have admitted to misreporting revenue figures, as per sources.
The GoMechanic case emerged at a time when the Indian startup ecosystem was already dealing with plenty of corporate governance lapses. This prompted limited partners in funds, including the likes of the Small Industries Development Bank of India (SIDBI) which invests in alternative investment funds (AIFs), to question funds about due diligence lapses and irregularities at various startups.
Sources close to a SEBI-registered AIF had told Inc42 at the time that the bank had questioned some VCs that had backed GoMechanic. Even the Registrar of Companies was reported to be looking into GoMechanic’s books amid allegations of financial irregularities.
Since its inception, the startup has raised roughly $55 Mn (or over INR 440 Cr) in funding from influential investors such as Tiger Global, Peak XV Partners (previously Sequoia Capital India), Orios Venture Partners, and Chiratae Ventures. Notably, Orios and Chiratae both have received fund commitments from SIDBI.
GoMechanic Sold; Founders Move On
Two months after the controversy broke out, GoMechanic was acquired by a consortium led by Lifelong Group, which is a majority shareholder in GoMechanic rival Servizzy.
Sources told Inc42 at the time that the transaction saw write-offs by all GoMechanic equity investors, while the venture debt investors in the company managed to recover some portion of their invested funds.
While the Lifelong Group did not reveal the size of the transaction, sources told Inc42 that the deal is to the tune of INR 220 Cr (roughly $27.5 Mn).
Responding to our queries, Orios’ Khan added that the firm has stepped up due diligence in all companies when investment and reinvestment rounds come up. “As GoMechanic managed to evade multiple rounds of audits and due diligence, while committing fraud, by Big 4 auditors, we have set up an internal process of “evidence based diligence” for all companies when we invest and reinvest in them,” Khan said.
Under the new best practices at Orios, Khan said that when startups submit bank statements showing transactions and balance, the fund asks them to show online bank account statements on video conference calls to verify the claims.
As Inc42 reported exclusively in late July, GoMechanic cofounders Rishabh Karwa and Nitin Rana are currently working on two separate and unnamed new startups, just six months after the controversy broke out.
Rana is working on a new startup and “Building Travel & Hospitality Product for Indian Subcontinent and World”, as per his LinkedIn profile, while Rishabh Karwa is looking to develop a location-based product for retail storefronts.
Incidentally, earlier this week, Servizzy sent a press release claiming that between April and June 2023, GoMechanic serviced more than 68,500 cars across India. It also claimed ~30% growth in both service revenue and GMV in the quarter.
“Over 10,000 new Miles Memberships have been activated since April 2023 alone, solidifying an impressive count of more than 48,580 active memberships. The team’s efforts continue to strengthen the brand’s position as a reliable choice for car owners nationwide,” the company said.
It remains to be seen whether the potential EOW investigation into GoMechanic will result in any fallout for Servizzy or the new business.
EOW Knocking On Startup Doors
Incidentally, in recent months, the EOW has been kept busy with investigations into allegations of corporate governance lapses at several startups.
BharatPe’s first information report (FIR) against ousted cofounder and MD Ashneer Grover, his wife Madhuri Jain Grover, and family members, including Deepak Gupta, Suresh Jain, and Shwetank Jain, was registered by EOW in May this year. The case pertains to an alleged INR 81 Cr fraud.
More recently, Broker Network founder and former Housing.com cofounder Rahul Yadav fell on EOW’s radar after a vendor alleged fraud to the tune of INR 10 Cr and criminal breach of trust.
Following the registration of the FIR, a lookout circular (LOC) has been issued by the EOW. Yadav’s bank account is said to have been frozen, with searches conducted at his residence.
