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Sequoia considers special audits for its South Asia investments amid murmurs of financial irregularities, claims report

Sequoia considers special audits for its South Asia investments amid murmurs of financial irregularities, claims report

This development comes amid reports of financial irregularities in its portfolio companies including Zilingo and GoMechanic.

The sources highlighted that this is complete contrast from Sequoia’s previous approach wherein it carried out due diligence only before investing in them. The sources highlighted that this is complete contrast from Sequoia’s previous approach wherein it carried out due diligence only before investing in them.

Sequoia Capital’s regional arm in South and Southeast Asia is planning to carry out special audits of several investments in the region following reports of financial irregularities being found in its portfolio companies including the likes of B2B fashion tech start-up Zilingo and autotech start-up GoMechanic.

 
The venture capital firm will work with Ernst & Young on some of these audits and will increase budget allocations to help investee companies put governance guardrails in place, people familiar with the matter told Bloomberg. The sources also added that Sequoia Capital India will now be more selective especially when taking board seats at their portfolio companies. They are also contemplating replacing junior members from their team on boards with more senior partners.


The sources highlighted that this is in complete contrast from Sequoia’s previous approach wherein it carried out due diligence only before investing in them.


“As a matter of practice, Sequoia Capital India & Southeast Asia conducts due diligence ahead of new, first-time investments. We may conduct diligence ahead of a follow-on round; at this juncture, we have not put a mandate for special audits,” a Mumbai-based spokesperson for the company said in an emailed statement.


A year ago, automobile services network start-up GoMechanic was in talks with Tokyo-based SoftBank to raise funds at a valuation of over $1 billion and become a unicorn. And now, it is staring at the possibility of shutting down after announcing the decision to lay off 70 per cent of its workforce.


Amit Bhasin, co-founder of GoMechanic also confessed to committing financial reporting errors in a LinkedIn post. He wrote:


“As entrepreneurs, we identify problems, come up with solutions, and explore every opportunity to grow those solutions to meet unmet needs. But in this instance, we got carried away. 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.”


Additionally, Singapore-based fashion tech start-up, Zilingo has begun its liquidation process if rumours are to be believed. Its founder, Ankiti Bose, was ousted from the company in May last year amid charges of financial wrongdoings. 
 

Also Read: 'We got carried away': How GoMechanic founders went astray and 70% employees lost their jobs

Published on: Jan 23, 2023, 7:09 PM IST
Posted by: Bhavya Kaushal, Jan 23, 2023, 6:56 PM IST