Japanese multinational SoftBank was about to enter a deal with Indian car servicing startup GoMechanic but now the deal seems to be off the table given how GoMechanic's own co-founder has admitted to lapses in financial reporting, and has gone on to fire 70% of the company's workforce.
What is happening at GoMechanic? It was reported on Tuesday (January 16, 2023) that the Gurugram-based company will be firing 70% of its staff-members. In a continuing trend of mass firings (BYJU’S being a major offender in India), the news came as a shock even as business observers began pointing fingers at financial irregularities within the companies.
The latest update comes from this morning (January 18, 2023) when GoMechanic co-founder Amit Bhasin decided to spill the beans in a LinkedIn post. He began the post by recounting how he started the company in 2016 “to bridge the gap between process-oriented authorised service centres and cost-effective local workshops for people who were looking for a better car repair experience”.
And then, he explained what went wrong. To quote Bhasin directly, “...we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret.”
He added that GoMechanic’s top executives take full responsibility for the situation and have decided to restructure the company. Calling it “painful”, he said the restructuring involves firing a significant chunk of the workforce. Bhasin added that a third party firm will be conducting an audit and he and his team are working on a plan for capital solutions in the future.
Previous issues with the company: Before GoMechanic co-founder Amit Bhasin spilled the beans in a LinkedIn post, EY (Ernst & Young) India raised issues regarding Due Diligence (DD), which they found before overseeing an investment in the startup. The concerns dealt with GoMechanic allegedly dealing in fictitious garages, selectively paying particular garage units, and inflating the revenue and user metrics.
What now? While not much is known about GoMechanic’s restructuring plans (except the firings), this is a major setback for the American venture capital firm Sequoia Capital that had been a major investing partner for the car servicing startup along with another American investment firm, Tiger Global.
Sequoia began funding GoMechanic as far back as July 2021. Now, GoMechanic is one of its many Indian investments to report financial irregularities with the others being payment platform BharatPe, video app Trell, and the tech-commerce platform Zilingo. Currently, Sequoia has reportedly initiated a probe into GoMechanic’s operations.
In the wake of these recent developments, SoftBank is naturally not indulging in any business with GoMechanic.