This comes seven months after Gurugram-based GoMechanic’s founders admitted to financial misreporting in a LinkedIn post. Orios Ventures managing partner Rehan Yar Khan confirmed the development to ET.
Following the admission, the investors wrote off their investments in the startup. Further, in May, the company was acquired by a consortium led by auto component-maker Lifelong Group in a slump sale. GoMechanic rival Servizzy was a part of this consortium.
Prior to the acquisition by Lifelong Group, GoMechanic had come under scrutiny from authorities including the Registrar of Companies (RoC), in addition to an insolvency case being filed with the National Company Law Tribunal. ET had reported that the RoC had sought to examine the books of GoMechanic’s parent company Targetone Innovations Pvt Ltd, amid allegations of irregularities.
Post-acquisition, GoMechanic has been attempting to raise fresh external capital, without much success, sources told ET.
According to sources, through the latest complaint filed with Haryana Police’s EOW, the investor group is attempting to unearth whether funds from the company were misappropriated as a result of revenue inflation, as admitted by the founders.
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On January 17, GoMechanic founder Amit Bhasin admitted to financial reporting errors at the startup and said the cash-strapped company would lay off roughly 70% of its workforce, while also having its accounts audited by a third party. The audit was conducted by EY.“Our passion to survive the intrinsic challenges of this sector and manage capital took the better of us and we made grave errors in judgment as we followed growth at all costs, particularly in regard to financial reporting, which we deeply regret,” Bhasin had written in a LinkedIn post.
ET also reported in February that three to four months prior to Bhasin’s admission of financial lapses, GoMechanic was planning to spin off its spare parts business and raise capital.
At the heart of this plan was a six-month-old startup called Morsebiz, founded by GoMechanic founder Kushal Karwa’s wife, Salonee Chitlangia, and her brother, Raunak Chitlangia, with Karwa and the other GoMechanic cofounders Rishabh Karwa and Nitin Rana acting as strategic advisers.
The news about investors approaching the EOW was first reported by online news portal Inc42.
ETtechFundraise roadblock
Under its new management, GoMechanic has approached several investors including RTP Global, Sofina Group, True North and Florintree seeking external capital, but has been unsuccessful so far.
The company is looking to raise $5-10 million but was turned away by venture capital and private equity investors, two people aware of the discussions told ET.
“Investors might be willing to take a business model risk but there is still little clarity on whether the numbers being pitched by the company are kosher,” a person aware of the discussions with GoMechanic said.
In response to a set of queries sent by ET, GoMechanic said, “Our existing investors continue to strongly support our growth journey, aiding us in navigating the competitive auto repair industry. We’re in the process of securing an equity round, with positive responses from current investors…The outlook for GoMechanic is optimistic due to impressive growth and recovery. Current investors play a crucial role, reflecting their belief in our long-term vision.”
Following the acquisition, Lifelong Group and its affiliate entities hold 42.32% stake in GoMechanic, while Hero Enterprises Venture Partners has 9.71%. GoMechanic’s original venture debt investor Stride Ventures owns a 16.45% stake in the company.
Queries sent to RTP Global, Sofina, True North and Florintree went unanswered.
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