GoMechanic is the latest startup that has been now in discrepancy because of revenue fraud and layoffs that impacted 70% of the workforce. Co-founder Amit Bhasin has just now accepted the fraud. False numbers were reported to shareholders and these numbers also escaped the attention of auditors.
Go mechanic journey :
Amit Bhasin, Kushal Karwa, Rishabh Karwa, and Nitin Rana founded this startup in 2016. This is the OYO model and prime idea was to partner with auto garages in terms of all standardization service quality and process. Neighboring garages were converted into branded workshops and supporting procedures were offered to them. Backend friction will lead to poor quality of service and opacity in pricing as well as service cost.
Pillars of the startup :
Standard service quality and uniform pricing are two main pillars of this startup. $55 Mn (or over INR 440 Cr) was funded by Tiger Global, Sequoia Capital India, Orios Venture Partners, and Chiratae Ventures in five years. Spare parts are supplied to authorized garages. Private labeled products like engine oil, brake oil, horns, coolants, and wiper blades are there in inventory.
What went wrong?
GoMechanic just opted for vertically integrated operations. It just overstretched itself during the tough phase. The story of GoMechanic is quite similar to Zilingo.
“Their problems began when they entered the spare parts business. That was a logical step but this is a highly unorganised space and old habits are hard to break,”Founder of a rival automobile repairs startup.
Techniques used :
AI/ML was used at five Indian warehouses to elevate procurement and increase spare part management experience. OEMs have a wide strong network within the garages and GoMechanic was trying to squeeze it.
COVID-19 a game changer :
Personal mobility had come to standstill during the pandemic. Cars were not seen in garages except essential service ones. 7-8 vehicles per day and approximately 100 vehicles were repaired in cities. 30,000 cars were serviced per month during the pandemic.
After pandemic :
When everything opened up $42 Mn was raised in a new round by Tiger Global. Its value was $285 Mn.
Why did the company suffer loss?
High losses were due to the purchase of stock in trade with INR 37.6 Cr. Employee costs too got doubled. Big expenditures were listed under the ” other expenses ” category. But the suffering loss was not a major issue for startups and shifting was done to cost-cutting measures like sustaining growth and extending runaway. Sone inflated numbers were seen in some authorized garages.
No planned expansion :
Funds that came in 2021 definitely allowed GoMechanic to expand its business and expand its network of services. Founder himself admitted on LinkedIn that expansion was not planned and had many fraudulent errors.
The workforce was reduced from 1,000 to 300 employees. Operations are now given to a few individuals. Earlier we had 5-6 managers but now only 1-2 managers are there. Serious inaccuracies were noticed in the financial reporting of startups. Third-party investors are appointed to investigate the matter. The next steps will be decided in further processes and meetings.
What will happen further with GoMechanic?
Each and every founder is advised to go on leave till the final forensic reports are out. Many garages will be closed due to a shortage of funds. There is a great doubt raised in its survival. Two possibilities arise either it will be acquired by OEM or its rival technology or else a change in management will be done at a lower level of valuation.