In a story that would once again highlight the “growth at all costs” VC mindset, as well as lacklustre monitoring of investee numbers, GoMechanic, the Sequoia-India backed auto services startup, is laying off 70% of its workforce. This comes after severe financial fraud within the company came to light, predominantly in terms of financial misreporting on revenue numbers.
The layoffs, along with financial wrongdoing, was admitted to, by founder Amit Bhasin in a LinkedIn post. “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 approx. 70 percent of the workforce. In addition, a third party firm will be conducting an audit of the business.”
The company has been on a lookout to raise capital since last year, having reached out to Softbank, Tiger Global and several others. Softbank had in fact nearly closed a $35Mn round, only to roll it back later. Tiger Global was evaluating the company for an investment at $1Bn+ valuation. Talks later fell through.
According to several media reports as well as company sources, the misreporting came to light when auditing firm EY found stacks of issues, highlighting inflated revenue. Additionally, the company also apparently misreporting the number of garages it worked with, with the EY report highlighting that some garages were fictitious.
In a joint statement, GoMechanic investors said the startup’s founders recently informed them 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 the inflation of revenue, which the founders have acknowledged. All of this was kept from the investors. The investors have jointly appointed a third party firm to investigate the matter in detail, and we will be working together to determine next steps for the company,” they added.
The revelation and subsequent layoffs have unfolded a series of debates and conversations among startup enthusiasts in the country. And while opinions are pouring in from all circles, employees have highlighted how exit strategy was absurd for most of them. A slew of employees have come out on Linkedin, highlighting how they were suddenly asked to leave and to not come to office starting the very next day. Vendors have also vented out non-payment frustrations online, with some unpaid bills going back to 2020.