Investors Approach Economic Offences Wing Amid GoMechanic Controversy
In a significant turn of events, investors of GoMechanic have taken their concerns to the Economic Offences Wing (EOW) to investigate the role of the company’s four cofounders in allegedly misreporting financial data and any potential misappropriation of funds.
Controversy Surrounding GoMechanic Financial Reporting
In January 2023, the controversy came to light when the founders of GoMechanic, an auto services startup, admitted to providing false revenue figures, thereby misleading their investors.
GoMechanic Investors’ Pursuit of Legal Action
Rehan Yar Khan, General Partner at Orios Venture Partners, confirmed that a complaint with the EOW has been filed by Orios, Sequoia (Peak XV), Tiger Global, and Chiratae. These investor parties view themselves as aggrieved parties due to their investment in GoMechanic and are actively seeking legal recourse.
Focus on Revenue Inflation and Misappropriation of Funds
Sources close to the investor group indicate that the EOW’s involvement aims to delve into how the alleged revenue inflation by GoMechanic’s founders could have potentially led to the misappropriation of funds.
GoMechanic Attempt to Address the Issue
In a LinkedIn post in January, cofounder Amit Bhasin publicly acknowledged committing “errors in judgement” related to financial reporting as the startup pursued growth. Bhasin expressed regret over the errors that stemmed from an eagerness to overcome challenges in the sector and manage capital.
Founders’ Admissions and Background
Founded in 2016 by Amit Bhasin, Kushal Karwa, Rishabh Karwa, and Nitin Rana, the startup’s other founders were also said to have admitted to misreporting revenue figures, as per undisclosed sources.
Amidst Broader Corporate Governance Issues
GoMechanic’s case came to light amid a backdrop of corporate governance concerns in the Indian startup ecosystem. Investors, including the Small Industries Development Bank of India (SIDBI), questioned funds about due diligence lapses and irregularities at various startups.
Impact on Funding and Future
The controversy led to GoMechanic’s acquisition by a consortium led by Lifelong Group two months later. The deal reportedly involved equity investors writing off their investments, while venture debt investors partially recovered their funds.
Enhanced Due Diligence Going Forward
Orios Venture Partners has heightened its due diligence procedures following the GoMechanic incident. The firm now implements an “evidence-based diligence” approach, including verifying financial claims through online bank account statements during video conference calls.
Founders’ New Ventures
Rishabh Karwa and Nitin Rana, two of GoMechanic’s cofounders, are currently pursuing separate startup ventures just six months after the controversy. Nitin Rana is focusing on building a travel and hospitality product, while Rishabh Karwa aims to develop a location-based product for retail storefronts.
EOW’s Ongoing Investigations
The EOW has been actively investigating allegations of corporate governance lapses in various startups in recent months, including cases involving companies such as BharatPe and Broker Network.
As the situation unfolds, we will see how the potential EOW investigation into GoMechanic will impact related businesses, like the recently acquired Servizzy or the new ventures initiated by GoMechanic’s founders.
