Nearly two years after it raised a mammoth $42 million in funding, it emerged that GoMechanic cooked its financial books by inflating revenues
Automobile after-sales service startup GoMechanic co-founder Amit Bhasin on Wednesday admitted to errors in financial reporting, following which a forensic audit has been ordered and a business restructuring undertaken which will see 70 per cent of the 1,000-odd workforce being laid off.
Nearly two years after it raised a mammoth $42 million in funding, it emerged that GoMechanic cooked its financial books by inflating revenues.
In a post on LinkedIn, Bhasin said founders got "carried away" in their quest for exploring opportunities to grow.
"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," he wrote without giving details of the misreporting.
A forensic audit has been ordered to gauge the magnitude of the financial misreporting.
Besides the retrenchments, the startup has reportedly asked the remaining employees to work without pay for the next three months.
"We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions," Bhasin wrote.
"This restructuring is going to be painful and we will, unfortunately, need to let go of approx. 70 per cent of the workforce. In addition, a third-party firm will be conducting an audit of the business."
Stating that while the situation is far from anything the founders could have ever imagined, GoMechanic is working on a plan which would be most viable under the circumstances.
Bhasin along with Kushal Karwa, Nitin Rana and Rishabh Karwa founded GoMechanic in 2016 as an automobile repair startup, connecting car owners with repair service providers in their area. It also sells original spare parts and accessories for automobiles on its website.
The startup is backed by marquee investors including Sequoia Capital, Tiger Global, Orios Venture Partners and Chiratae Ventures. In June 2021, it raised $42 million in Series C funding from Tiger Global, Sequoia Capital India, and others.
"The investors of GoMechanic were recently made aware by the company's founders of the serious inaccuracies in the company's financial reporting. We are deeply distressed by the fact that the founders knowingly misstated facts, including but not limited to inflation of revenue, which the founders have acknowledged," a statement by major investors said.
The investors, it said, have jointly appointed a third-party firm to investigate the matter in detail.
"We will be working together to determine the next steps for the company," it added.
With loans of Rs 120 crore and repayments of about a third due, the Gurugram-based startup will have to raise funds to survive.
"We founded GoMechanic in 2016 to bridge the gap between process-oriented authorized service centers and cost-effective local workshops for people who were looking for a better car repair experience. In a short span of time, we were able to create a startup that provided a 'network of technology-enabled car service centers, offering its services at the convenience of just a tap'," Bhasin wrote in the blog.
The effort was to facilitate a convenient, affordable, and reliable experience which helped the company win the trust of customers.
"We were fortunate to get support from a large number of investors in this journey. We came a long way, from starting out with a few hundred customers to expanding our business exponentially to serving more than 7 lakh customers thus far," he said.
"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 went on to ask for the support of well-wishers.