GoMechanic’s unravelling raises questions over investors’ due diligence

In the last 48 hours, GoMechanic's unravelling has caught people's imagination. The Bengaluru-based startup, which was last valued at $300 million after a funding round in January 2021, is now in freefall after revelations that it had inflated its revenue numbers in pursuit of a fresh round of funding. Already, the startup has laid off 70% of its workforce and is staring down a grim and uncertain future.

Co-founder and CEO Amit Bhasin's admission of culpability was a refreshing break from the usual practice of denial or outright silence usually seen in cases such as these, but serious questions still remain.

Mostly, they're centered around why investors have been ignoring compliance hygiene in their portfolio startups, slacking off on due diligence, and proactively working on corporate governance, especially given the string of fallouts from last year at BharatPe, Trell and Zilingo.

The issue came to light after Softbank, which was negotiating with GoMechanic to close a funding agreement at a unicorn valuation, noticed irregularities in due diligence reports submitted to it by EY, which the investment giant had engaged.

Softbank pulled out of the deal and sounded the alarm, after which Sequoia launched a forensic investigation.

GoMechanic and its founders now await an uncertain future as investors scramble to get a grip on this situation. But what are its possible recourses?

We break it down for you on The Crux.