In a LinkedIn post, Bhasin said the founders got “carried away”. “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.
ET first reported that SoftBank pulled out of investing in GoMechanic after a due diligence by EY India highlighted loopholes in the company’s accounts and operations.
Also read | SoftBank-GoMechanic funding deal falls through post EY due diligence
The due diligence brought to the fore issues like fictitious garages, selective payments to certain garage units and overall inflated revenue and user metrics in the Sequoia Capital and Tiger Global-backed startup.
The company has ordered a forensic audit to gauge the magnitude of the financial misreporting.
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“We take full responsibility for this current situation and unanimously have decided to restructure the business while we look for capital solutions,” Bhasin said, without giving details of the financial misreporting.He said that the restructuring will be “painful” and affect about “70% of the workforce”.
“While the situation is far from anything we could have ever imagined for GoMechanic, we are working on a plan which would be most viable under the circumstances,” Bhasin wrote.
“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,” said a statement by its major investors — Sequoia Capital, Tiger Global, Chiratae Ventures and Orios Venture Partners.
“We will be working together to determine the next steps for the company,” it added.
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 such as Sequoia Capital, Tiger Global, Orios Venture Partners and Chiratae Ventures.
In June 2021, the company raised $42 million in a Series-C funding from Tiger Global, Sequoia Capital India, and others.