Delhi-NCR-headquartered car repair startup GoMechanic has had a tough year. Or, a tough two years maybe.
After its struggle to raise capital since the last funding round in June 2021, the company went on to admit to financial irregularities in January, following which it also laid off 70 per cent of its 1,000-strong workforce. It naturally led to concerns around GoMechanic’s ability to stay afloat, given the dearth of free-flowing venture capital in the current market.
GoMechanic also dealt with insolvency pleas, vendor mistrust, customer dissatisfaction over unserved requests, and employee grudges over unpaid salaries. Add to that, one of its largest shareholders - Orios Venture Partners - has reportedly written down its entire investment in the battered car servicing startup. Mails sent to Rehan Yar Khan, who led the GoMechanic deal on behalf of Orios VP, did not elicit any response.
But all may not be over yet.
Sources told Business Today that GoMechanic’s buyout talks with used car marketplace CarTrade are in the final stages, and both companies could arrive at a deal in the next two weeks. Or even before the end of FY23. Besides CarTrade, there is also an undisclosed secondary buyer in the mix. “The proposed deal is expected to be structured in a way that CarTrade acquires a portion of GoMechanic’s assets, including its network of service stations and associated technologies, while other parts are sold to the second entity,” the source revealed.
GoMechanic has been on the lookout for potential buyers over the last 1-2 months since it admitted to fraud. Besides CarTrade, the company has also held preliminary discussions with the likes of Spinny and Cars24, per reports. However, those talks are said to have not materialised over “discrepancies” in valuation and other financial metrics. GoMechanic was last valued at $30 million on March 11, 2023, according to Tracxn. This is a dramatic drop from its valuation of $285 million in June 2021, at the time of its Series C fundraise.
When Business Today reached out to GoMechanic for a confirmation on its deal talks with CarTrade, the founding team shared that it is “working on a way forward that will be beneficial to all stakeholders”. Allaying fears about its possible shutdown in case it fails to find a buyer, the company said in an email, “Closing [down] the business is an unsubstantiated speculation, and is not true.”
The startup’s investors, meanwhile, have been tight-lipped about recent developments. Besides Orios VP, GoMechanic also counts Tiger Global, Sequoia Capital, Chiratae Ventures, and Snapdeal founders Rohit Bansal and Kunal Bahl among its investors. It has raised a total of $62 million across seven funding rounds, per Tracxn. Emails sent to Sequoia India, which is still GoMechanic’s largest shareholder, remained unanswered.
Business Today also reached out to potential buyer CarTrade, which stands to gain direct access to the automobile after-sales segment if the GoMechanic acquisition goes through. “Reports suggest there's [been] an acquisition done by us. We would like to clarify that it is speculative. Even though we continue to evaluate such opportunities, no decision has been taken in relation to any acquisition,” a CarTrade spokesperson told Business Today.
At GoMechanic’s Gurugram office, meanwhile, a bunch of employees wait for some light at the end of the tunnel. “A portion of our salary has been slashed since January because of the financial crisis that the company is in. However, we have been indirectly told that things will start getting better from April,” one employee told Business Today on Wednesday.
While the jury is still out on GoMechanic’s fate, its rapid unraveling points towards a deeper, more systemic malaise in India’s startup ecosystem that rewarded reckless growth-at-all-costs during the funding boom of 2020-21. But as soon as the macros started pinching and VCs turned off the funding tap, startups struggled to make ends meet. In FY22, GoMechanic reported losses of Rs 114 crore on operating revenues of Rs 90.5 crore, per RoC.
Things went further south for the startup once stories of its financial misreporting and fictitious garages surfaced. Even though GoMechanic Co-founder Amit Bhasin called it “errors in judgment” in his now-viral LinkedIn post, it begs the question: How did these errors escape the attention of reputed global investors and financial auditors like KPMG and PwC through the years?
Well, our guess is as good as yours.
(With inputs from Prerna Lidhoo)
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