Venture capital firms as well as angel investors are also discussing winding down Mojocare’s operations and distributing the remaining capital among themselves, even as a forensic audit of the Bengaluru-based company is underway, they said.
Facebook cofounder Eduardo Saverin’s B Capital, Chiratae Ventures, Peak XV’s Surge (formerly Sequoia Capital India) are the large shareholders of the startup.
ETtechThe investors have shared among themselves a draft note about the founders allegedly inflating the business numbers, the people said.
The final report on the forensic audit, being conducted by Deloitte, is expected in around 10 days.
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“The legal action will be dependent on the final report, but directionally it’s already clear that the founders lied about revenue numbers and that’s the main issue really. The nature of the legal case — civil or criminal — will need to be decided as well and there were calls on the same (taking legal action) in the last 24 hours,” one of the investor sources in the firm said.
According to people briefed on the internal developments, the founders inflated the revenue numbers which were part of their annual operating plan (AOP). “… they didn’t hit any of those numbers. They were doing about Rs 1 crore a month in sales and projected a certain growth in the AOP and kept saying they have clocked those targets. It’s a rookie mistake,” said one of them.
Two investors said the founders of the firm confessed to them about inflating the revenue numbers.
Mojocare was founded in May 2021 by Ashwin Swaminathan and Rajat Gupta.
A spokesperson for the company said it has no comments to offer.
Mojocare has raised $23.7 million since its founding in 2021, last at a valuation of $67.1 million, as per Tracxn. People close to the company confirmed the valuation.
It is estimated to still have about Rs 80-100 crore in the bank, even as its operations have come to a screeching halt.
“There are virtually no operations now. There is a discussion on either selling or winding up operations and returning the remaining capital to existing investors,” said a person briefed on the developments.
Parallels are being drawn to the recent fire sale of Peak XV Partners–backed GoMechanic, where most investors wrote the investment off after the founders confessed that its growth was riddled with financial lapses. “Even for a sale, it would be hard to find a buyer and that may come with several riders including access to cash in the bank,” this person added.
How it started
Irregularities in the company’s books were noticed during its internal audit for fiscal 2023, also conducted by Deloitte, the people aware of the matter said. There was resistance from the company to share certain details.
By May, the founders accepted the irregularities, leading to the investors appointing Deloitte for the forensic audit.
At present, the company has about 30-40 employees — including contractual staff — who are focusing on honouring previous contracts with vendors and trying to clear the leftover inventory, one of the people cited earlier said.
On Saturday, it announced laying off of 150-170 staffers across roles.
Recently, the startup had moved into a new office in Bengaluru’s HSR Layout, an employee said. “The four-storey building was initially to be used by the company, but the first floor was soon given up; now we are not sure,” said the employee, who is still with the firm.
“The investors have also appointed a CFO, with expenses and cash-outs being made only after approvals,” said one of the people.
The chief financial officer, Ashwani Gupta, was appointed about a month ago, the employee said.
The company had an average monthly burn of around Rs 3.5 crore when the irregularities were found in around May.
“At Mojocare, we are working closely with our investors to find a way forward. We categorically deny all accusations of money being taken out of the company. Together with our investors we are actively figuring out what’s best for the business,” a spokesperson from Mojocare said in a statement late Sunday.
The Mojocare incident is the latest in India indicating lapses in corporate governance among startups. BharatPe, Zilingo, Trell, GoMechanic and Rahul Yadav’s 4B Networks too had come under scrutiny for such issues.