Investors in GoMechanic have requested that EY conduct a forensic audit of the startup’s accounts to investigate claims of fraud and financial misreporting. After SoftBank discovered irregularities in the five-year-old firm’s growth and revenue numbers while inspecting accounts prior to a potential investment, GoMechanic’s founders admitted to falsifying figures to investors. In a LinkedIn post on Wednesday, the company also announced the dismissal of 70% of its employees, numbering between 1,100 and 1,200.
Investors in GoMechanic include Sequoia Capital, Tiger Global Management, Orios Venture Partners, Brand Capital, Chiratae Ventures, and Elina Investments.
“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. All of this was kept from investors. The investors have jointly appointed a third-party firm to investigate the matter in detail, and we will be working together to determine the next steps,” major investors of the company said in a joint statement.
According to Tracxn data, Sequoia Capital owns 26.89% of GoMechanic, followed by Orios Venture Partners at 17.1%, Tiger Global at 10.03%, and other investors with a combined 11.2% stake.
Amit Bhasin, Kushal Karwa, Nitin Rana, and Rishabh Karwa, the company’s founders, own 25.5% of the company. “EY is working on the forensic audit, and once the enquiry is complete, we will have a complete picture of the nature and magnitude of the misrepresentation,” said an investor of GoMechanic.
Bhasin’s LinkedIn post confirmed the layoffs and said the business would undergo restructuring. “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 approximately 70% 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,” Bhasin’s Linkedin post read.
EY’s due diligence for a new funding round by SoftBank revealed evidence of round-tripping in financial parlance. This means the company inflated revenue figures and reported disproportionate revenue from a slew of garages that may or may not have existed.
According to a third party, the company has also increased the number of customers on its platform as well as the partners with whom it collaborates.
The company did not use a franchisee-led model or charge franchisee fees for workshops. Instead, it works on a revenue share model, so the amount of business they do each month is recorded on their workshop management system.
Pitstop, GoBumpr, Carpathy, and Mahindra First Choice compete with GoMechanic. GoMechanic was in talks with SoftBank to raise $75-80 million in a new funding round, with participation from Malaysian sovereign fund Khazanah Nasional. It has so far raised nearly $62 million in four funding rounds.
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