GoMechanic, the Sequoia-backed start-up, is in the midst of a financial irregularity storm after a due diligence exercise conducted by EY for potential investors found lapses in its financial reporting.
The co-founder of the car service aggregator Amit Bhasin almost admitted to such irregularities when he said in a LinkedIn post that the startup made “errors in judgement as we followed growth at all costs, including in regard to financial reporting, which we deeply regret”.
He also accepted that they “got carried away”, and their “passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us”.
Bhasin disclosed that while a third-party firm will be conducting an audit of the business, the company has decided to restructure the business. This recast, he added, will lead to GoMechanic laying off nearly 70 per cent of its workforce.
“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 per cent 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,’’ he noted.
In a joint statement, the major investors of GoMechanic said they were recently informed of serious inaccuracies in the company’s financial reporting.
“We are 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.
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.
