GoMechanic founder Amit Bhasin on Wednesday admitted to financial reporting errors like inflating revenues, a move which will see the company firing around 70% of its staff as the entire business needs to be restructured. The tech-based car maintenance provider will also have its accounts audited by a third party.
“Our passion to survive the intrinsic challenges of this sector and manage capital took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret,” Bhasin wrote in a LinkedIn post.
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“As entrepreneurs, we identify problems, come up with solutions, and explore every opportunity to grow those solutions to meet unmet needs. But in this instance, we got carried away,” Bhasin added.
“A few days ago, GoMechanic’s founders went to some of their investors and directly confessed that the numbers reported by the company are not correct,” a person aware of the developments told FE.
The revelations forced GoMechanic’s major investors — Sequoia Capital India, Tiger Global, Orios Venture Partners, Chiratae Ventures, among others — to appoint EY India as a forensic auditor and investigate the matter. The development could lead to investors partially or even fully selling their stake.
The irregularities were highlighted when SoftBank was weighing an investment of about $40 million at a valuation of $700 million, people aware of the development said. GoMechanic was last valued at $285 million, when it raised $42 million from Tiger Global, Pawan Munjal Family Trust and several other existing investors, according to Tracxn data.
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According to a Bloomberg report, EY’s research suggested that 60 of the more than 1,000 GoMechanic service centres may have violated accounting standards to overstate revenue and divert funds.
Taking cognisance of the revelations, major investors in GoMechanic said, “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 the inflation of revenue, which the founders have acknowledged.”
The statement added, “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.”
So far, the Gurugram-based company had regularly held all its quarterly board meetings and had even received the required clearance from statutory auditors. GoMechanic even filed its management information system, a regular update that startups share with investors, every month.
Amit Bhasin, Kushal Karwa, Nitin Rana, Rishabh Karwa together founded GoMechanic in 2016. GoMechanic had earlier reported that its revenue had doubled from Rs 47.2 crore in FY21 to Rs 96.8 crore in FY22, while losses jumped over 4X from Rs 27.4 crore in FY21 to Rs 114.3 crore in FY22.