GoMechanic in Talks to be Acquired by CarTrade
- ByStartupStory | March 11, 2023
Around three to four months prior to GoMechanic’s admission of financial irregularities and subsequent layoff of 70% of its workforce, the company was pursuing a distinct strategy of divesting its spare parts division and seeking funding. The Gurgaon-headquartered firm aimed to spin off its spare parts business and raise capital before its financial troubles came to light.
Morsebiz, a startup established in March 2022, was a key component of GoMechanic’s strategy to divest its spare parts business and raise $4 million from investors in the Delhi-NCR region. Morsebiz marketed itself as the “Alibaba for auto components” during its presentations to potential investors. However, the fate of Morsebiz became intertwined with the collapse of GoMechanic’s financial situation. While it is not uncommon for startups to seek early-stage funding, the story of Morsebiz is inextricably linked with the downfall of GoMechanic.
Morsebiz’s fate became intertwined with GoMechanic’s collapse for two main reasons: it was founded by the wife and brother of GoMechanic’s founder, with the support of the company’s cofounders, and it was pitching to the same investors who had invested in GoMechanic, including Sequoia Capital, Orios Venture Partners, and Chiratae Ventures.
Morsebiz generated $9,000 in revenue from two orders in August and projected $519,000 in revenue by March 2023, according to their pitch deck. However, investors were not willing to support the plan for GoMechanic to hive off its spare parts business, merge it with Morsebiz, and acquire a 30% stake in the startup, as it did not align with their investment strategy.
An executive from a venture capital fund raised concerns about how the GoMechanic founders would divide their time between the company and Morsebiz, but there was no apparent conflict of interest at the time. In October 2020, GoMechanic expanded into the spare parts business, providing parts to authorized garages and exporting to countries in South Asia, South America, Africa, and the Middle East.
GoMechanic’s revenue grew more than 2.5 times to Rs 91 crore in FY22, compared to Rs 34 crore in FY21, but expenses surged to Rs 210 crore from Rs 74 crore. The company closed a funding round of $42 million in FY22 from Tiger Global at a $285 million valuation, but financial lapses and errors were later revealed.
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