GoMechanic co-founder Amit Bhasin apologises for revenue fudging and 70% staff cut

Admitting to serious errors in financial reporting, he wrote, “Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret.”

In his post, Bhasin wrote that the co-founders take 'full responsibility' for the current situation and have decided to restructure the business while seeking capital.

He added that the company would need to let go of approx. 70 percent of the workforce as a part of the restructuring.

According to Stride Ventures, of which GoMechanic is a portfolio company, the investors of GoMechanic were recently made aware by the founders of certain issues in financial reporting, including inflation of revenue.

"The shareholders have appointed a third-party firm to investigate the matter. In parallel, the company is speaking to OEMs, auto ancillary companies etc. for a strategic investment. We are monitoring the developments closely and will keep you informed on the progress," the firm added.

Earlier, due diligence conducted by EY (Ernst & Young) for prospective GoMechanic investors alleged that the Indian auto-services firm had inflated revenue, Bloomberg reported.

EY’s research alleged that about 60 out of the 1,000 GoMechanic service centres may have violated accounting norms to overstate revenue and divert funds. The investor group that hired EY has reportedly pulled out of talks to invest in GoMechanic and informed Sequoia about the lapses, as per the report.

Meanwhile, Sequoia Capital, GoMechanic’s single-biggest investor, is set to conduct a forensic audit of the start-up’s finances.

Investor Rahul Chandra tweeted taking a dig at the incident, saying that young founders are in a hurry.

Another Twitter user said that legal action needs to be taken in such cases and that apologies are not enough.

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Japanese multinational conglomerate, the SoftBank Group might also have pulled out of making investments in the start-up.

The move comes as GoMechanic struggled to raise funds for over a year despite advanced stages of discussions with several investors. Last year, the start-up was in talks to raise a round of funding led by Tiger Global at over $1 billion valuation, TechCrunch reported.