GoMechanic has laid off 70% of its workforce because the Sequoia India-backed startup grapples with a funding disaster after present and potential traders discovered the founders had their information mistaken.
The transfer comes as Gurgaon-headquartered GoMechanic, which gives automotive companies corresponding to repairs and automobile washes, has struggled to lift funds for over a 12 months regardless of reaching superior levels of discussions with a number of traders.
GoMechanic was in talks early final 12 months to lift a funding spherical led by Tiger International at a valuation of over $1 billion, tipsmasti beforehand reported. The talks didn’t materialize into an settlement after some discrepancy was found throughout the due diligence course of, a supply stated.
GoMechanic later partnered with plenty of different traders, together with Malaysia’s Khazanah to lift a big spherical. Khazanah positioned itself to steer the spherical whereas SoftBank additionally needed to take part.
This new spherical is now not continuing as critical irregularities have been present in its books, two sources stated, requesting anonymity whereas speaking to the press.
An investigation into the seven-year-old startup by EY as a part of due diligence for the most recent funding spherical discovered a number of issues together with inflated income and that some garages have been fictitious, two sources stated.
The debacle on the startup – which is quickly operating out of money in its financial institution and desires one other infusion quickly to outlive, in accordance with a supply accustomed to the matter – is the most recent headache for Sequoia India, probably the most influential enterprise investor within the South Asian market . Zilingo, BharatPe and Trell, three different Sequoia India-backed startups, have had governance and audit points previously 12 months.
Chiratae Ventures, one other GoMechanic investor, was seeking to promote a few of its shares a couple of months in the past at a $700 million valuation, in accordance with one other supply accustomed to the matter.
In a joint assertion, GoMechanic traders stated the startup’s founders just lately knowledgeable them of “critical inaccuracies within the firm’s monetary reporting.”
“We’re deeply troubled by the truth that the founders have knowingly misrepresented the information, together with however not restricted to the inflation of earnings, which the founders have admitted. All of this was saved from the traders. The traders collectively appointed a third-party agency to research the matter intimately, and we are going to work collectively to find out the following steps for the corporate,” they added.
In a LinkedIn submit on Wednesday, GoMechanics co-founder Amit Bhasin stated the startup made “critical errors of judgment in pursuing progress in any respect prices, significantly by way of monetary reporting, which we deeply remorse.” (In an up to date LinkedIn submit, Bhasin edited out the phrase grave.)
“We take full accountability for this present scenario and have unanimously determined to restructure the enterprise whereas on the lookout for capital options. This restructuring can be painful and we are going to sadly need to let go of roughly 70 % of the workforce. As well as, a third-party firm will implement an audit of operations. Whereas the scenario is way from something we may ever think about for Go Mechanic, we’re engaged on a plan that might be most sustainable below the circumstances.”
The Gurgaon-headquartered startup has additionally instructed its remaining workers to work with out pay for 3 months, Indian information outlet The Morning Context reported on Tuesday.
The story was up to date with further particulars together with feedback from GoMechanic’s co-founders and traders.