GoMechanic, a car repair business, has announced the layoff of over 70% of its workers. Amit Bhasin, the company’s CEO, has acknowledged financial reporting irregularities. He also stated that he will have the company’s books examined by an independent party.
The layoff tsunami has also affected the Indian IT industry, and GoMechanic is not the only Indian business that will lay off workers in 2023. Before the vehicle repair startup, Dunzo, an Indian food delivery firm, and ShareChat, a social networking startup, had reduced their employment by 3% and 20%, respectively.
According to the co-founder, this is why the firm made such a rash decision to lay off employees.
Amit Bhasin, the co-founder of GoMechanic, confirmed the termination on Linkedin. The reason for such a layoff decision was that the corporation got carried away in an endeavor to seek expansion. The desire to withstand the inherent obstacles of this industry and manage money got the best of the firm and management made mistakes in judgment as they pursued expansion at all costs, including in financial information, which the company now bitterly regrets.
According to Bhasin, to restructure the firm, the corporation will have to lay off over 70% of its workers. The company accepts full responsibility for the current predicament and has chosen unanimously to reorganize the firm while the team seeks financing options. This reorganization will be harsh, and as a result, the company will be forced to lay off almost 70% of its workers. A third-party organization will also undertake an audit of the company. The co-founder declined to say how many staff will be affected. Bhasin did not say if it will offer severance payments to the affected workers.
The talks between Softbank and GoMechanic.
According to persons familiar with the case, SoftBank has withdrawn from a funding transaction in vehicle repair startup GoMechanic after more than a year of sporadic conversations, as due diligence (DD) revealed serious flaws in the company’s accounting and operations.
Malaysia’s sovereign fund Khazanah, which had been co-leading the $70-80 million fundraising round, also backed out of the Gurugram-based startup’s fundraising, precipitating a succession of changes in recent weeks. On Wednesday, one of the company’s founders, Amit Bhasin, admitted to financial missteps, laying off 70% of its employees and launching an examination of the company.
According to the people cited above, the investment diligence conducted by EY India for SoftBank and Khazanah jointly highlighted issues such as fake garages, choosy payouts to certain garage segments, and significant differences in revenue and user performance measures at the Sequoia Capital and Tiger Global-backed company
The Japanese technology giant originally approached GoMechanic about a prospective investment agreement in early 2022, but the negotiations fell through owing to a value mismatch.
“The business met SoftBank’s founder Masayoshi Son and the agreement was agreed upon in principle. However, SoftBank didn’t agree to the $1.2 billion value requirement; instead, they were ready to provide $850-900 million…,” said one individual speaking on the request for anonymity since the conversations were confidential.
In an internal email to its limited partners (LP), venture capital company Orios Venture Partners stated that it had written down its stake in problematic vehicle maintenance startup GoMechanic.
While Fund II’s exposure was 7.79% of the committed corpus, the assets represented about 1.27x of the fund’s multiple on invested capital at the latest round’s valuation (MOIC). “The business is deducting this amount,” stated the email. According to previous filings, Orios Venture Partners has received a total contribution of $75 million for its second fund.
According to VCCedge statistics, GoMechanic was last valued at $285 million after financing $42 million. SoftBank and Khazanah Nasional were leading a fresh fundraising round for the Gurugram-based startup.
What exactly is GoMechanic?
GoMechanic is a series of technology-enabled auto service centers that provide smooth customer service at the touch of a button. We are the best bet with our highly qualified specialists, manufacturer-recommended processes, and the guarantee of authentic spare parts.
Why is the unicorn tag so significant?
This is an excellent example of how not to do business. Maintaining investor trust is critical. It is a huge setback for India. A firm that possessed the capacity to become a Unicorn has failed.
The final line.
It appears like we are only witnessing the top of the iceberg in the startup environment. Recently, it appears that most businesses are MLM schemes for the wealthy. To do due diligence, the big four firms rely far too heavily on 1-2 year pass-out graduates who get carried away by a few rounds at a high-end restaurant. Due diligence entails not just financial considerations, but also extensive networking and comprehension of the physical evidence needed to back revenue development.
edited and proofread by nikita sharma