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👨🏻🔧 The founders inflated revenue and lied to investors
How GoMechanic collapsed after investors found out they fabricated financial records (that went unnoticed for 2 years)
Admond Lee
November 10, 2024
Hey Founders,
Welcome to The Runway Ventures — a weekly newsletter where I deep dive into failed startup stories to help you become the top 1% founder by learning from their mistakes with actionable insights.
Today’s story is about How GoMechanic’s founders committed fraud to grow at all costs and for personal gains. Let’s get to it! 🚀
Today at a Glance:
☠️ 1 Failed Startup → GoMechanic
⚠️ 2 Mistakes → Committed fraud for personal gains
🧠 3 Lessons Learned → Integrity is non-negotiable
🔗 The Runway Insights → How to do sales with no experience
💰 Southeast Asia Funding Radar → Tim Ho Wan got acquired by Philippines’ Jollibee for $15.3M
☠️ 1 Failed Startup: GoMechanic
🚀 The Rise of GoMechanic
🇮🇳 Founded in 2016 by four friends (Amit Bhasin, Kushal Karwa, Nitin Rana, and Rishabh Karwa), GoMechanic was a tech-enabled platform in India to bridge the gap between traditional authorised service centres and local workshops that often lacked reliability.
The Problem — 👨🏻🔧 Car owners often struggled to find trustworthy mechanics and faced the exorbitant costs associated with authorised service centres.
❌ They noticed that car owners often faced expensive and unreliable service from authorised dealerships, which didn’t cater to various repairs and maintenance needs.
The Solution — 🤝🏻 GoMechanic offered a network of service centres where customers could book car repairs and maintenance online.
✅ GoMechanic aimed to provide a dependable, standardised, and affordable alternative through a network of partner garages, all powered by a tech-driven booking and tracking system that could streamline car repair services for customers.
It provided a host of services including AC service, car repair, batteries, denting and painting, and more.
🚘 The vision was clear — GoMechanic wanted to shake up the car repair industry in India by making car servicing as easy as a tap on your smartphone.
 | 🚗 The problem was painful, frequent and massive.
|
🔥 In just a few years, GoMechanic skyrocketed to success.
They built a network of over 1,000 service centres across major cities in India:
served over 700,000 customers
serviced around 30,000 cars monthly
garnered a reputation for transparent pricing and quality service
💰 At its peak, GoMechanic raised $42 million in funding by mid-2021 from big-name investors like Sequoia Capital and Tiger Global at a valuation of $285 million, establishing itself as a key player in India’s burgeoning auto-tech space.
📈 Their growth was impressive, with revenues “reportedly” increasing significantly year-on-year, leading to lofty expectations that they could soon achieve unicorn status with a valuation exceeding $1 billion when they were in talks with SoftBank.
📉 The Fall of GoMechanic
But… was it really the case?
💸 Despite GoMechanic’s initial success, everything collapsed when whispers of financial irregularities started circulating among investors in early 2022 (which was later admitted by the founders), leading to irreversible and catastrophic consequences.
Our passion to survive the intrinsic challenges of this sector, and manage capital, took the better of us and we made errors in judgment as we followed growth at all costs, including regarding financial reporting, which we deeply regret.
📌 Here’s what happened to GoMechanic:
🏎️ F1 Driving Experience
2016 — GoMechanic was founded by 4 friends aiming to make car servicing reliable and convenient with transparent pricing.
Jun 2021 — 💰 Raised $42 million in Series C funding Tiger Global, Sequoia Capital, Orios and Chiratae Ventures at a valuation of $285 million, achieving rapid growth and expanding its services.
2022 — 🤑 In talks with SoftBank and Khazanah Nasional to raise funds.
Jan — The founders demanded the valuation to be at $1.2 billion.
Mar — But SoftBank didn’t agree and counter-offered a valuation of $850-$900 million. In the end, the potential funding deal had fallen through due to a valuation mismatch.
Aug — Running out of cash, GoMechanic approached SoftBank again to raise a $30-$35 million investment at a much lower valuation of $600-$650 million.
Sep — Meantime, Khazanah Nasional (Malaysian sovereign fund) was keen to lead a $100 million investment round at a valuation of $700 million.
Oct — 🧐 SoftBank and Khazanah hired EY to carry out due diligence on GoMechanic before infusing funds.
🚨 Crashed and Burned
Jan 2023 — ⚠️ EY uncovered discrepancies in financial reporting. SoftBank and Khazanah pulled out (they dodged a bullet 😳)
Out of 1,000 service centres, EY found that about 60 of them violated accounting norms to overstate revenue and divert funds.
🤯 GoMechanic’s founders admitted to inflated revenue figures.
These discrepancies came to light while the company was struggling to raise more funds, leading to severe repercussions.
Amit publicly admitted to the financial misreporting due to a “growth-at-all-costs” mindset.
Mar 2023 — 🪓 The scandal led to a mass layoff of 70% of its workforce (~700 employees) and initiated a forensic audit to assess the extent of financial mismanagement.
😮 GoMechanic was acquired by Servizzy (a subsidiary of Lifelong Group) in a fire sale at a steeply reduced valuation of $30 million.
With the existential crisis, GoMechanic's board sought a fire sale to ensure the business's continuity.
This acquisition aimed to stabilise the struggling company while leveraging Lifelong’s expertise in the automotive sector.
Oct 2023 — 👮🏻 Delhi Police EOW booked GoMechanic’s 4 founders for cheating and forging documents based on the First Information Report (FIR) lodged by the existing investors. The FIR stated that the founders had:
Fabricated and falsified the books of accounts and financial records of the company that were presented to investors in order to dishonestly and fraudulently induce investors into investing in the company between 2017-2021 (more to be shared below 🤦🏻♂️).
Honestly, I think the problem that GoMechanic was solving was spot on. Car owners had the problem, and GoMechanic provided the right solution. In the end, because of the short-term thinking, the founders pursued the “growth-at-all-costs” path that led the company to demise.
Want to learn more about GoMechanic’s downfall?
Bloomberg: Sequoia-Backed GoMechanic Inflated Revenue, to Fire 70% Staff
Bloomberg: Khazanah in Talks to Lead $100 Million Round at GoMechanic
'We got carried away': How GoMechanic founders went astray and 70% employees lost their jobs
GoMechanic founders, officials booked for ‘cheating, forging documents’ by Delhi Police EOW
How GoMechanic unravelled after SoftBank-Khazanah funding round collapsed
Car servicing startup GoMechanic acquired by Lifelong group led consortium in slump sale
⚠️ 2 Mistakes
Mistake 1: Committed fraud for personal gains
Throughout the period between 2017-2021, it was reported that the founders had been fabricating and falsifying the books of accounts and financial records of the company including:
⚠️ Over-reported revenues + under-reported expenses
For example, the company had been inflating revenues and under-reporting expenses, giving a false impression to investors that the company was financially well.
⚠️ Diverted and siphoned the funds for personal and ulterior uses
It was reported that the founders founded another startup (Morsebiz — Alibaba for auto components) with their family members and pitched to GoMechanic’s investor to raise $4 million.
🤯 The crazy part? It was all planned.
Morsebiz was founded by Salonee Chitlangia, wife of GoMechanic founder Kushal Karwa, along with her brother Raunak Chitlangia, with Karwa and other GoMechanic co-founders as advisors.
GoMechanic planned to merge its spare parts business with Morsebiz in exchange for a 30% stake, but this structure was a deal breaker for some potential investors of Morsebiz.
It seems like they (GoMechanic) were building this family business (Morsebiz) with investors’ money and planning to acquire it for “personal gains”.
⚠️ Kept investors in the “dark” about their true financial position
🤦🏻♂️ For example, one of their emails included a "portfolio report" showing a balance of approximately $24 million in the company’s account as of 29/7/2022, but verification revealed an actual negative balance of over $12 million around the same dates.
Mistake 2: Growth at all costs
GoMechanic’s founders got seduced by the lure of hyper-growth, chasing lofty valuations and market dominance without the internal structure to sustain it.
They expanded too quickly, leading to major cracks in their operations, finances, and eventually their reputation. As the founders kept pushing for more funding at higher valuations, they overlooked the true health of their business, even inflating revenue to keep up appearances.
Bad move.
🧠 3 Lessons Learned
Lesson 1: Integrity is non-negotiable
In the chase to become the "Uber of car servicing", GoMechanic’s founders inflated their revenue numbers to meet investor expectations. But when due diligence exposed the real figures, everything came crashing down.
🌟 Key Takeaways:
🤝🏻 Always prioritise transparency and honesty in your financial reporting
Think long-term. Never sacrifice integrity for short-term financial gains.
Integrity isn’t just a moral value, it’s the backbone of trust and credibility. Once compromised, it’s impossible to regain, and the fallout can be devastating.
Establish robust internal controls and regular audits to ensure that financial data accurately reflects the company's performance. This not only builds trust with investors but also helps you make informed decisions.
Lesson 2: Keep growth real (not just rapid)
When it comes to building a startup, fast growth can be exhilarating. However, The “growth-at-all-costs” mindset of the GoMechanic's founders eventually killed the company.
🌟 Key Takeaways:
📈 Sustainable growth > Growth at all costs
Yes — sustainable growth might be slow. But slow is smooth, and smooth is fast. Don’t over-grow.
Regularly audit your financials and operations. Set realistic, measurable KPIs and only expand when your core business model can support it.
For example, Basecamp grew slowly and sustainably by emphasising profitability and stability over quick scale.
A balanced pace might mean slower funding rounds but often leads to a longer-lasting business.
Lesson 3: Due diligence is an ongoing responsibility for investors
Early investors like Tiger Global and Sequoia Capital invested in GoMechanic without doing comprehensive due diligence to identify financial misreporting, causing them a significant loss and potential harm to the startup ecosystem.
🌟 Key Takeaways:
🧐 Pre-Investment — Investors should do comprehensive due diligence before investing in companies
Trust should be earned, not given to founders blindly.
Engage a 3rd party auditing firm to perform DD as early as possible to identify potential red flags or financial misrepresentation.
Develop a standardised due diligence checklist that includes financial audits, verification of operational metrics, and an assessment of corporate governance practices.
Then, engage third-party auditors or consultants to provide an unbiased review.
🙏🏻 Post-Investment — Continuous monitoring and regular check-ins
Set up regular check-ins with portfolio companies to review financial performance and operational metrics. This ongoing engagement can foster transparency and allow for timely interventions if problems arise.
Encourage open communication to build trust and detect red flags early.
🔗 The Runway Insights
💰 Southeast Asia Funding Radar
Tim Ho Wan got acquired by Philippines’ Jollibee for $15.3M (Link)
Modifi, a B2B BNPL platform, secures $15M from SMBC Asia Rising Fund (Link)
Finfra raises $2.5M led by Cento Ventures to help more businesses offer financial services — fast (Link)
Dash Electric raises seed funding led by The Radical Fund to scale EV-as-a-service across Indonesia (Link)
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That’s all for today
Thanks for reading. I hope you enjoyed today's issue. More than that, I hope you’ve learned some actionable tips to build and grow your business.
You can always write to me by simply replying to this newsletter and we can chat.
See you again next week.
- Admond
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