GoMechanic has laid off 70% of its workforce as the Sequoia India-backed startup grapples with funding crunch after the existing and potential investors found that the founders had misstated facts.
The move comes as the Gurgaon-headquartered GoMechanic, which offers auto-services such as repairing and carwashing, has been struggling to raise funds for over a year despite reaching advanced stages of deliberations with several investors.
GoMechanic was in talks early last year to raise a round of funding led by Tiger Global at over $1 billion valuation, TechCrunch reported earlier.
The talks did not materialize into a deal after some discrepancy was found during the due diligence process, a source said.
GoMechanic later engaged with a number of other investors, including Malaysia’s Khazanah to raise a large round. Khazanah was positioning to lead the round whereas SoftBank was also looking to participate.
This new round is no longer proceeding through as serious discrepancies have been found in its books, two sources said, requesting anonymity speaking to the press.
A probe into the seven-year-old startup by EY as part of the due diligence for the recent funding deliberation found scores of issues including inflated revenue and that some garages were fictitious, two sources said.
The startup is fast-running out of cash in its bank and needs a new infusion soon to survive, according to a source familiar with the matter.
Chiratae Ventures, another investor in GoMechanic, was looking to sell some of its shares a few months ago at a valuation of $700 million, according to another source familiar with the matter.
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.
In a LinkedIn post on Wednesday, GoMechanic co-founder Amit Bhasin said the startup made “grave errors in judgement as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret.” (In an updated LinkedIn post, Bhasin edited out the word grave.)
“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. While the situation is far from anything we could have ever imagined for Go Mechanic, we are working on a plan which would be most viable under the circumstances.”
The Gurgaon-headquartered startup has also told the remaining staff to work without pay for three months, Indian news outlet The Morning Context reported Tuesday.
The story was updated with additional details including comments from GoMechanic co-founder and investors.