Won’t Tolerate Any Financial Irregularity: Sequoia To Portfolio Companies

Venture capital (VC) firm Sequoia India is reportedly writing off its investment in the beleaguered auto repair startup GoMechanic. 

Sources told Business Standard that the VC firm will also take action against the startup’s founders, contingent upon the findings of an audit report sought from Ernst & Young (EY).

The US-based VC firm has also warned its portfolio company against indulging in financial irregularities.

“We have heard that Sequoia is reaching out to its ecosystem and telling that there will be zero tolerance for such actions, and if material fraud is proven then there will be repercussions,” a source said.

Meanwhile, investors such as Stride Ventures plan to liquidate GoMechanic’s assets to pay debts and salaries of employees till the month of January. 

On the other hand, sources said that Sequoia has so far not asked for audits at its existing portfolio firms. This comes in the backdrop of recent reports that said that the VC firm was considering special audits of several of its investments in South Asia and Southeast Asia.

The development comes days after EY, which was conducting due diligence for prospective investors, found financial irregularities at the car repair startup. Subsequently, reports surfaced that Sequoia India had undertaken a forensic audit at the company. 

Following this, the startup fired more than 70% of its staff, and cofounder Amit Bhasin publicly admitted to committing ‘errors in judgement’ with regards to the company’s financial reporting. 

Since then, GoMechanic has approached startups such as Cars24 and Spinny for a potential acquisition, while investors have been looking to hawk the company to salvage the remains. 

A few days ago, Orios also wrote down its stake in the company. 

Sequoia is the single-largest institutional investor in GoMechanic and owns 27% in the startup. The Gurugram-based company last raised $42 Mn in Series C funding in 2021 at a purported valuation of $285 Mn.

Sequoia’s veiled threat to startups comes amid a string of corporate governance issues that has plagued its startups. Earlier, similar instances of financial irregularities and lax implementation of corporate governance guardrails also happened at three other portfolio companies of Sequoia, including BharatPe, Trell and Zilingo. 

Many of the founders and top brass of these startups have had a public fallout with Sequoia executives, including BharatPe’s ex-MD Ashneer Grover and Zilingo’s cofounder Ankiti Bose. 

The renewed focus on strengthening corporate governance norms comes at a time when Sequoia has been looking to deploy a major chunk of its recently raised $2.85 Bn venture fund in India. With three such instances coming to light in the past one year, it remains to be seen whether the VC firm tightens its purse strings or continues scaling investments in the country.