Sequoia emphasises 'zero tolerance' for irregularities after GoMechanic row

Venture capital firm writing off investment in GoMechanic and may take action against company's founders: Sources

Sequoia Capital
Sequoia Capital
Shivani Shinde Mumbai
2 min read Last Updated : Jan 26 2023 | 9:53 PM IST
US venture capital firm (VC) Sequoia has told firms in its portfolio it has "zero tolerance" for financial irregularities, reaffirming the policy after governance lapses at India’s GoMechanic, sources said.

GoMechanic is laying off 70 per cent of its workforce and seeking funds after investors earlier in January flagged accounting irregularities at the aftermarket automotive service maintenance company. It is the third Sequoia-backed start-up in over a year, after Singapore-based Zilingo and fintech unicorn BharatPe, to report financial irregularities.

“We have heard that Sequoia is internally re-emphasizing that there will be zero tolerance for such actions and if material fraud is proven then there will be repercussions,” said a source on condition of anonymity.

Sources said that Sequoia is writing off its investment in GoMechanic and based on an EY audit report it may take action against the start-up’s founders.

Investors plan to liquidate GoMechanic’s assets to pay debts, such as from Stride Ventures, and employees’ salaries for January. “I think the bigger concern is to make sure that employees get their salaries at least till January. But for that investors will have to agree as well,” said a source.

The source added that so far Sequoia has not asked for audits for any of its existing investment portfolio firms. An email sent to Sequoia was not answered.

GoMechanic’s financial irregularities—it allegedly inflated revenue—were found when EY conducted due diligence for prospective investors.

GoMechanic’s founder Amit Bhasin said in a LinkedIn post earlier this month: “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…”

There have been reports that Car24 and Spinny have been approached for a potential acquisition of GoMechanic’s assets.

Zilingo, another firm in which Sequoia's investment and which sacked its founder and chief executive officer for alleged financial irregularities, sold its tech asset to a Swiss e-commerce management software company.

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Topics :Sequoia CapitallayoffStartupsAuditing

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