GoMechanic, one of India’s largest car service networks, has been forced to find a buyer after a massive fraud was uncovered, leaving investors out of pocket and the company’s future uncertain.
Founded in 2016 by Amit Bhasin, Kushal Karwa, Rishabh Karwa, and Nitin Rana, GoMechanic quickly became a popular choice for car repairs and maintenance services in India. With a network of service centers across the country, the company raised more than $60 million in venture capital over the years and had plans to expand to 1,000 service centers by 2023.
Trouble in Paradise
However, the company’s rapid growth came to a halt when SoftBank, one of its biggest investors, conducted an audit of GoMechanic’s service centers and uncovered major disrepencies. The audit reportedly found that some of the service centers did not exist or were not operational, leading SoftBank to pull out of a $50-75 million investment deal.
After the alleged fraud was uncovered, GoMechanic’s founders admitted to inflating revenue by creating fictitious service centers, claiming that the deed was committed by a few employees without their knowledge or approval. GoMechanic’s investors, including Sequoia Capital and Chiratae Ventures, reportedly wrote off their investments after the scandal.
According to the Registrar of Companies (ROC), the company’s revenue and losses in FY22 were Rs 90 crore and Rs 114 crore respectively, but the veracity of these numbers is uncertain.
The Final Closure
Stride Ventures, which had given GoMechanic $20 million in debt, began looking for a buyer after the allegations came to light. The firm eventually found Lifelong Group, a manufacturer of auto components for giants like Hero and GM, which acquired GoMechanic for an undisclosed amount.
The acquisition is expected to benefit Lifelong Group, as it can now directly sell its components to GoMechanic’s network of garages and service centers. However, it is unclear how the acquisition will impact GoMechanic’s employees and customers.
The case of GoMechanic highlights the risks associated with investing in startups, as even the most successful and promising ventures can fall victim to such cases. It also serves as a reminder of the importance of due diligence when investing in startups, as SoftBank’s audit of GoMechanic’s service centers uncovered the reality that otherwise would have gone undetected.