GoMechanic acquisition leaves VC investors empty-handed; Stride Ventures to recover Rs 100 cr debt in phases

The venture capital investors on troubled car repair start-up GoMechanic’s captable including Sequoia Capital, Tiger Global Management, Chiratae Ventures, Orios Venture Partners, and Elina Investments have written off their investments, people aware of the deal said.

Venture debt provider Stride Ventures, which led the deal conversations, will get back its Rs 100 core investment in the company. “Stride will receive a significant chunk of its investment now as the deal closes, the rest will be paid back in a few months’ time,” said a person in the know of the deal structure.

A consortium led by auto components maker Lifelong Group announced the acquisition of the start-up earlier today.

Used car marketplace CarTrade was in the running for a potential acquisition of GoMechanic, but pulled out of the conversations over “discrepancies” in valuation.

The company was valued at $285 million at the time of its Series C fundraise in June 2021, which dramatically eroded down to just about $30 million in March 2023 after its founder admitted to financial irregularities.

Founded in 2016, GoMechanic has raised a total of $62 million from investors with Sequoia Capital being the largest stakeholder in the company at 26.89 per cent ownership. Orios Venture Partners, the second largest stakeholder with 17.1 per cent, had already written off its investment in the company. The decision came to light as it informed its limited partners (LPs) about the write-off in a letter in January. Tiger Global owns 10.03 per cent of the company and other investors including Chiratae Ventures, Elina Investments and Brand Capital together owns 11.2 per cent stake.

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.

The Gurugram-based company also dealt with insolvency pleas, vendor mistrust, customer dissatisfaction over unserved requests, and employee grudges over unpaid salaries.

In FY22, GoMechanic reported losses of Rs 114 crore on operating revenues of Rs 90.5 crore, per RoC filings. Things went further south for the start-up once stories of its financial misreporting and fictitious garages surfaced.

“Acquisition of the GoMechanic business aligns with our strategic vision of synergising the Lifelong Group’s proven expertise in the automotive industry. We are focused on building upon GoMechanic's business," Lifelong Group said in a statement. 

Lifelong Group, which services the likes of General Motors, Hero, among others, has been looking to expand its operations in the automotive after-sales segment, where GoMechanic had built a presence. It led the Servizzy consortium, which emerged as the strongest bidder for GoMechanic.

Email queries sent to Stride Ventures, Sequoia Capital, Tiger Global Management, Chiratae Ventures, and Orios Venture Partners did not elicit a response till the time of publishing this report.