Startups today have become synonymous with raising large amounts of funding and achieving unicorn status. They focus more on creating big bucks rather than creating something meaningful, solution-oriented, and long-term. This approach has often led to corporate governance lapses at startups, resulting in disappointment for investors and the company's reputation.
One such example is GoMechanic, a car repair startup with a strong customer base and a network of nearly 1,000 garages across 40 cities in India. GoMechanic had all the right mix to be a pioneer in the garage services business. It had the first-mover advantage, IIM A-graduate founders, big names of the VC world either invested or interested.
Yet, things went downhill. Amit Bhasin, Co-founder at GoMechanic, in a LinkedIn post admitted to financial reporting errors at the Sequoia-backed car repair startup. He said that he, along with his three co-founders, “got carried away” while trying to grow at all costs and made “grave errors” in judgment. Since 2022, India has seen at least three major instances of corporate governance lapses at startups BharatPe, Zilingo, and Trell. Interestingly, all three startups have Sequoia Capital as their common backer.
SoftBank’s Vision Fund and Malaysian sovereign fund Khazanah Nasional were in the process of investing $75-80 million in a Series D round, which was led by SoftBank’s Vision Fund and Malaysian sovereign fund Khazanah Nasional, along with participation from others. Just like most investors, SoftBank hired an auditing firm, EY, to do the financial due diligence for the prospective investment, and the findings of EY shocked one and all. According to a Bloomberg report, EY’s findings suggested that about 60 of more than 1,000 GoMechanic service centers might have violated accounting norms to overstate revenue and divert funds.
SoftBank and other prospective investors immediately pulled out of the deal and informed Sequoia and other existing investors of GoMechanic, which include Tiger Global Management, Orios Venture Partners, and Chiratae Ventures. While this was happening, the founders of GoMechanic, themselves confessed in front of their existing investors about the irregularities. “All the investors were shocked. No one knew about it. No one had seen it coming. It was sudden. It is very disappointing when people (founders of GoMechanic) of such calibre do something like this,” said a person with direct knowledge of the matter.
GoMechanic has raised more than $60 million in funding to date from a clutch of global investors, including Tiger Global, Sequoia Capital, Orios Venture Partners, and Chiratae Ventures, among others. The company raised its last big round in December 2021, when Tiger Global Management, along with the company’s existing investors, invested about $42 million, as part of its Series C funding round.
The problem with such an approach is that it puts the emphasis on short-term growth, often at the expense of sustainable, long-term growth. Startups need to strike a balance between scaling and sustainability. The founders need to have a clear vision and mission, focused on providing value to customers and creating a sustainable business model. Instead of chasing unicorns, startups need to focus on solving real-world problems and creating a viable, long-term solution. In conclusion, the frenzy for funding has become a double-edged sword for startups, leading to corporate governance lapses and a focus
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