The unravelling of GoMechanic after SoftBank-Khazanah funding collapsed; Oyo to refile IPO papers
Also in this letter:
■ IT hiring slowest for top four companies in eleven quarters
■ Delhi HC restrains Ashneer Grover from creating ‘interest’ on disputed BharatPe shares
■ Microsoft to cut thousands of jobs in fresh layoffs
SoftBank-Khazanah pull out of GoMechanic funding as EY flags financial misreporting
In December last year, SoftBank and Khazanah pulled out from investing in car servicing startup GoMechanic after a due diligence (DD) report from EY brought to light glaring loopholes in the company’s financial reporting and overall business, people aware of the matter told us.
With the funding round falling through and many questions being raised by incoming investors, the company was left with not much of an option but to admit to these lapses.
Red flags galore: The investment DD by EY India flagged discrepancies like fictitious garages, selective payments to certain garage units and overall inflated revenue and user metrics in the Sequoia Capital and Tiger Global-backed startup.
Two weeks ago, after the funding round did not go through, the present investors took note of the gaps in the company’s financial reporting. Sources close to the matter said they further questioned the company about these red flags.
What happened next? Sources close to the matter told ETtech that GoMechanic founders confessed to their investors about reporting inflated financials. “The GoMechanic team said whatever numbers they had so far disclosed to the board is not true and they they were inflated,” one of the persons briefed on the matter said.
The ongoing forensic audit, which too is being handled by EY is expected to arrive at the depth and nature of irregularities at the company.
Founder responds: Taking to LinkedIn, GoMechanic cofounder Amit Bhasin admitted to grave errors in the company’s financial reporting. He confirmed that the company will fire roughly 70% of its employees in restructuring amid a fund crunch.
Bhasin said that the founders got “carried away” in their bid “to survive the intrinsic challenges of this sector, and manage capital”. “We made errors in judgment as we followed growth at all costs, including in regard to financial reporting, which we deeply regret,” he wrote.
Investors speak: Meanwhile, major investors in the company — Sequoia Capital, Tiger Global, Chiratae Ventures and Orios Venture Partners — put out a statement saying they were “recently made aware by the company’s founders of the serious inaccuracies in the company’s financial reporting.” “We will be working together to determine the next steps for the company,” the investors said in a joint statement.
The company had last raised $42 million in Series-C funding from Tiger Global, Sequoia Capital India, and others and is valued at around $300 million.
Oyo to refile updated DRHP with Sebi by mid-Feb
Oyo is planning to refile its public listing application of the draft red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) by the middle of February this year, a company spokesperson said.
Background: The company had filed its DRHP for the IPO with Sebi in September 2021 and is aiming to raise Rs 8,430 crore. Oyo’s last submission to Sebi was the updated financial results of the first half of FY23.
Details: ET reported on December 31 that Sebi had asked Oyo to update the draft IPO papers. The regulator had asked Oyo to refile the DRHP, updating all the relevant sections such as risk factors, KPI’s, outstanding litigations, and basis for offer etc.
Quote, unquote: “We are working on updating all key sections simultaneously. Responsibilities have been divided among different teams, with senior company leaders driving the collaboration with the book running lead managers, essentially the IPO bankers, the lawyers and the auditors,” a company spokesperson said.
Top four IT companies add just 1,940 employees in Q3
India’s top four IT companies — Tata Consultancy Services (TCS), Infosys, HCL Tech and Wipro — together recorded a net addition of 1,940 employees in the quarter ended December 2022, the lowest in 11 quarters, as demand for technology services slows amid global macroeconomic uncertainty and geopolitical concerns.
What the numbers say: The decline marks a sharp drop of nearly 97% from the net addition of 61,137 employees by the big four IT firms in the third quarter of FY22. This is also a nearly 94% drop from a net addition of 28,836 in the second quarter of FY23.
Attrition drops: At the end of December 2022, TCS’ overall headcount dropped by 2,197 employees. In Bengaluru, Wipro recorded a decrease of 435 employees in the same period. The IT majors also saw a sharp drop in attrition in the quarter, which is seasonally a weak period for IT hiring.
Freshers in demand: Each of the top four IT majors could hire between 15,000-50,000 fresh engineers from campuses in 2023. This comes on the back of aggressive on-campus hiring by tech exporters in recent years. Collectively the top four IT firms onboarded around 227,000 freshers in fiscal 2022.
Delhi HC restrains Ashneer Grover from creating ‘interest’ on disputed BharatPe shares
The Delhi High Court on Wednesday restrained BharatPe cofounder and former managing director Ashneer Grover from creating any third-party rights or interest on shares ‘transferred’ to him by the company’s original cofounder Bhavik Koladiya.
Recap: ET exclusively reported on January 17 that Koladiya has filed a case against his former partner Grover, and was looking to reclaim his shares in the company.
HC has set March 16 as the next date for the hearing.
Last year in December, BharatPe also approached the Singapore International Arbitration Centre (SIAC), seeking to clawback co-founder Grover’s restricted shareholding in the company.
Details: Koladiya founded the fintech firm in 2017 with Shashvat Nakrani, his schoolteacher’s son. In 2018, they began searching for a chief executive for the company and eventually joined hands with Grover.
Koladiya’s purported stake in the company became a bone of contention after Grover resigned from the firm.
Microsoft to cut thousands of jobs in fresh round of layoffs: reports
Microsoft is likely to slash 11,000 jobs or about 5% of its workforce, UK broadcaster Sky News reported, citing people aware of the matter.
The company plans to cut jobs in a number of engineering divisions on Wednesday, a Bloomberg report said, adding that the cuts will be significantly larger than other rounds in the past year.
The company had 221,000 full-time employees, including 122,000 in the United States and 99,000 internationally, as of June 30, according to filings.
Job cuts continue: Microsoft recently slashed its workforce in October and July, and has paused hiring. In October, news site Axios reported that Microsoft had laid off under 1,000 employees across several divisions. Meanwhile, Insider reported that the company could cut recruiting staff by as much as one-third.
Major layoffs in other companies: Microsoft joins Amazon, Meta, Salesforce, among other major companies that have sacked thousands of employees in the past few months. Recently, Amazon CEO Andy Jassy announced the e-commerce giant will lay off over 18,000 employees, starting January 18. Facebook parent Meta Platforms has said it will let go of 13% of its workforce, or more than 11,000 employees, as part of a plan to reduce costs at the social-media platform. IT major Salesforce announced that it was laying off around 10% of its employees, or just under 8,000 people.
Also read: Google, Meta lead Big Tech layoffs. All you need to know
Today’s ETtech Top 5 newsletter was curated by Megha Mishra in Mumbai and Erick Massey in Delhi. Graphics and illustrations by Rahul Awasthi.
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