BUSINESS

GoMechanic’s Deception And Downfall

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GoMechanic is an Indian company that provides car repair and maintenance services, including services such as oil changes, tire rotations, and brake repairs. The company also offers car detailing, car washing, and other car care services. GoMechanic operates a chain of service centres across India, and customers can also book services online through the company’s website. It has been in the news for all the wrong reasons, financial fraud, layoffs of 70% of its staff and misleading the investors.

It is a Gurgaon-based startup founded in April 2016 by Amit Bhasin, Kushal Karwa, Nitin Rana and Rishabh Karwa. GoMechanic has 10 investors including Orios Venture Partners and Sequoia Capital India. The company has raised a total of raised $54.8 million. They closed their last funding round on Jun 7, 2021, from a Series C round and raised $35 million from Tiger Global Management.

GoMechanic is an online platform that offers services like denting and painting, exterior and interior car care services and cashless insurance repairs, enabling users to service their cars in a hassle-free manner. It uses a combination of technologies to provide its services. The company uses digital tools such as an online platform that allows customers to book services, track their vehicle’s service history, and pay for services. They also use technology such as car diagnostic tools that allow their mechanics to quickly diagnose and fix problems with a customer’s vehicle. Additionally, GoMechanic also uses software to manage and track inventory, schedule appointments, and communicate with customers. GoMechanic uses 22 technology products and services including jQuery, Google Analytics, and Google Fonts, according to G2 Stack. It is actively using 52 technologies for its website, according to BuiltWith. These include Viewport Meta, IPhone / Mobile Compatible, and SPF.

While GoMechanic is not a pioneer in the market, it is considered as one of the well-known players in the market. GoMechanic set out to infuse tech and structure to the unorganised automobile repair industry. They differentiated themselves by providing a unique combination of technology and services. The company’s online platform and car diagnostic tools are designed to make it easier for customers to book services, track their vehicle’s service history, and pay for services. They converted local garages into Gomechanic branded workshops with standard operating procedures, original spare parts, standard pricing and technology. Additionally, the company’s focus on customer service, transparency, and quality had helped it to gain a reputation as a reliable and trustworthy provider of car repair and maintenance services in the past few years.

The Losses Increase & Cracks Begin to Show

However, this goodwill has not lasted long. The problems began as early as 2020 when the company ventured into the spare parts business which was highly unorganised and mostly cash-based. It launched its private label of engine oil,  brake oil, coolant, wiper blades and horns to its inventory. The company which started as a middleman was now taking on the OEMs(original equipment manufacturers). In 2022 it entered into insurance with warranty packages for motor vehicles. Things started to crack in the company because of too many verticals.

Although the revenue of the company grew from INR 34.1 Cr in FY21 to INR 90.5 Cr in FY22, its expenses grew as well. It recorded a loss of INR 74 Cr in FY2021 and a loss of INR 114 Cr in FY2022. Employee costs doubled from INR 30 Cr to INR 61.7 Cr in the past two financial years. However, the largest expense of INR 108 Cr was categorised as ‘other expenses’. No explanation was given for this expenditure in the company’s regulatory filings. PWC was the auditor in the year 2021 and gave the company a clean chit. So did the auditor of 2022 KPMG. Neither reported any discrepancies.

The company raised close to $55 million until June 2021, it spent half of that in FY21 and FY22, but the revenue of the 2 years combined was only $15 million. Losses are a part of the startup journey and it did not seem to raise concern amongst the investors till now. The cracks began to show when GoMechanic was in the process of raising $75-80 million in a Series D round to be led by SoftBank’s Vision Fund and Malaysian sovereign fund Khazanah Nasional. SoftBank hired EY to conduct the due diligence and the results were shocking. EY’s findings suggested that about 60 of more than 1,000 GoMechanic service centres might have violated accounting norms to overstate revenue and divert funds. GoMechanic had reported over-inflated numbers and fictitious garages. Some of the garages were found to be making disproportionately more money during due diligence.

Obviously, SoftBank and the other potential investors backed out. They also informed the existing investors which include Tiger Global Management, Orios Venture Partners and Chiratae Ventures of EY’s findings. This shocked the investors and they asked EY to conduct a forensic audit for them. Meanwhile, the founders of GoMechanic, themselves confessed in front of their existing investors regarding the irregularities.

The EY audit is ongoing so at the moment the existing investors do not have any data to hold the founders accountable. Once the EY report is out, investors will have to decide on the course of action be it legal action, ousting of the founders or the company shutting down.

In the past year, we have seen three major instances of corporate governance lapses at startups BharatPe, Zilingo and Trell, now it’s GoMechanic. GoMechanic’s episode has once again shaken India’s startup ecosystem, it has put the spotlight on corporate governance lapses. One wonders how this is possible when investors and audit firms are closely watching the companies. So much for their due diligence!!!

Confession on Linkedin by CoFounder Amit Bhasin

“We founded GoMechanic in 2016 to bridge the gap between process-oriented authorized service centres and cost-effective local workshops for people who were looking for a better car repair experience. In a short span of time, we were able to create a startup that provided a ‘network of technology-enabled car service centres, offering its services at the convenience of just a tap.’ It was our conscious commitment to facilitate a convenient, affordable, and reliable experience that helped us win the trust and hearts of our customers. We were fortunate to get support from a large number of investors in this journey. We came a long way, from starting out with a few hundred customers to expanding our business exponentially to serving more than 7 Lac customers thus far.

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. Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret.

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 approx. 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.

Need the support of our well-wishers more than ever.”

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