GoMechanic, an aftersales car service start-up, on Wednesday admitted to errors in its financial reporting, following which a forensic audit has been ordered. The company will also sack 700 people from a total of 1,000 employees.
In a post on LinkedIn, one of the Co-Founders Amit Bhasin admitted to the errors and said the four founders got “çarried away” in their quest for exploring opportunities to grow. Nearly two years after it raised $42 million in funding, the start-up cooked its financial books by inflating revenues.
“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 wrote.
A brainchild of four friends - Kushal Karwa, Amit Bhasin, Rishabh Karwa and Nitin Rana- GoMechanic was founded in 2016 as a network of technology-enabled car service centres, offering car service experience at the convenience of a tap.
Marquee investors
It 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.
Meanwhile, a forensic audit has been ordered to gauge the magnitude of the financial misreporting. Besides the retrenchments, the start-up has also 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. This restructuring is going to be painful, and we will, unfortunately, need to let go of approximately 70 per cent of the workforce. In addition, a third-party firm will be conducting an audit of the business,” Bhasin wrote.
He added that GoMechanic is working on a plan which would be most viable under the circumstances.
“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.
Third-party firm
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 ₹120 crore and repayments of about a third due, the Gurugram-based start-up will have to raise funds to survive.
“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 seven-lakh customers thus far,” Bhasin further said and urged for the support of well-wishers in the LinkedIn post.