One after another after another; a number of Sequoia Capital’s portfolio companies are found to be indulged in serious financial irregularities, and the latest one that is added to the list is GoMechanic, an automobile after-sales service startup.
On January 18, Amit Bhasin, Co-founder, disclosed that the company has laid off 70% of its employees. However, a few other sources have also confirmed that the remaining employees are asked to work without pay for the next three months given the current market challenges.
GoMechanic made heads turned when it successfully raised a whopping $42 million at the valuation of $325 million two years ago. Sequoia is the single largest investor in GoMechanic.
Amid the news of layoffs and Sequoia launching a forensic audit, Amit Bhasin, the co-founder of GoMechanic, took to LinkedIn, taking full responsibility for the current situation. He claimed that the company is leaving no stone unturned to stay afloat by raising more funds, and also restructuring the whole business.
However, in the later part of his LinkedIn post, he admitted to ‘making some grave errors of judgement’ while managing capital. He, however, clarified that his decisions were influenced by the ‘growth at all cost‘ approach which has eventually put him in a tough spot now.
It all started with Tiger Global abruptly backing off from the investment talks when GoMechanic was aiming the unicorn status with a valuation of over $1 billion.
Later GoMechanic engaged Softbank, alongside many other marquee investment firms, to raise funds, albeit at nearly half of the valuation they were seeking from TigerGlobal. However, during the due diligence process, Softbank decided to suspend talks related to $75-$80 million investment round in GoMechanic. The investment firm reportedly found many financial irregularities in books of accounts while considering to lead the round with a $35 million investment. Malaysian sovereign fund Khazanah Nasional was another investor who was also interested in participating in the round.
“GoMechanic had reported overinflated numbers and fictitious garages. Some of its favored partner garages were found to be making disproportionately more money during due diligence,” claims the sources of MoneyControl.
For Sequoia, GoMechanic is the fourth portfolio company found involved in some serious financial irregularities. BharatPe, Singapore-based business-to-business (B2B) e-commerce startup Zilingo, and social commerce startup Trell were the other three unicorn startups that were accused of financial irregularities.
Citing an EY search, Bloomberg has claimed that 60 out of 1,000 GoMechanic service centres are suspected to be involved in violation of accounting standards by overstating revenue and diverting funds.
GoMechanic currently runs over 900 garages in more than 40 cities.
