The GoMechanic Saga

Hi friends 👋,

Happy Hump Day and welcome to the 15th edition of Weekly Olio - your weekly dose of laughter, learning, and maybe a little bit of intrigue due to our thought piece (yes, we mean Publisher’s Parmesan here). 🤭

Many thanks for all your support and feedback so far, we hope it continues the same in the coming days and weeks. 😊 

Today’s, Publisher’s Parmesan covers the recent fiasco at GoMechanic.

For context, GoMechanic is an online vehicle repair platform that allows consumers to arrange car maintenance at a convenient time. The platform provides options to book car services such as denting and painting, exterior and interior care, and cashless insurance repairs.

Let’s start with the curation first.

The Quote󠀢 💭

The Tweet 🐦

China’s Great Firewall has birthed a new breed of companies - ones that can help creators and brands navigate the treacherous waters of social media, all while receiving the blessing of the CCP. But here's the catch - these companies also serve as a megaphone for Chinese propaganda, spreading its influence through a network of "Frontier Influencers".

Behind the veil of the Great Firewall lies a world of opportunity for Chinese content creators and brands to reach a global audience, but at what cost? As these companies help promote the CCP's message to the world, it raises the question of just how far China's influence on the online discourse extends.

Are we on the cusp of a new era of digital propaganda and censorship, where the Great Firewall of China looms over the world's internet like a shadow? The answer may be closer than we think.

The Infographic 💹

Interesting visual showing what people feel about how polarised their countries are. Some surprise placements - Saudi Arabia, China and the United States.

Agree? Disagree? Let us know by replying to this email.

The Short Read 📝

Gig workers in India are uniting to take back control from algorithms - by Rest of World

Gig workers in India are finding creative ways to hack through the black box algorithms of ride-hailing and food delivery apps like Uber, Swiggy and Zomato.

That's an interesting development in the gig economy in India. The use of community networks through Telegram or WhatsApp is a clever way for gig workers to organize and level the playing field against marketplaces that may not have their best interests in mind.

By gamifying the algorithms, these networks can help workers get more work, better incentives, and even pay off their dues. The distributed network of workers allows for real-time detection of patterns, giving workers the information they need to succeed in the gig economy.

It's amazing to see how technology and communities can come together to empower workers and improve working conditions in the gig economy. This is a prime example of how people can work together to overcome challenges and create a fairer and more equitable system.

The Long Read 📜

Sea change - by Howard Marks

Howard Marks is the co-founder and co-chairman of Oaktree Capital Management - an American alternative asset management firm with $164B under management.

Howard Marks' memo highlights an interesting shift in the world of finance. The first sea change he mentions, the rise of US high-yield bonds, and the second, the long-term decline in interest rates, both had a profound impact on financial markets and investment strategies.

However, with the current trend of rising inflation and interest rates, we may be seeing a return to a world where credit investments once again offer attractive returns. This shift from a low-return environment to a full-return world is what Marks describes as the third sea change.

It's important to consider the implications of this transition for both individual investors and financial institutions. As capital moves away from risk assets and towards credit investments, we may see a reallocation of resources and a change in the dynamics of the financial markets. Understanding the genesis and potential outcomes of this transition can be crucial for staying ahead in the ever-evolving world of finance.

Publisher’s Parmesan 🧀

The GoMechanic Saga

GoMechanic was looking forward to joining the coveted unicorn club with its latest round of financing but things did not turn out according to plan. The discovery of financial irregularities as part of the due diligence process has pushed GoMechanic into chaos. With 70% of staff laid off and founders confessing to the inaccuracies, its future hangs in balance.

GoMechanic was started in 2016 with an aim to infuse tech and structure into the unorganised automobile repair industry in India. The idea was to partner with individual garage owners and bring standardisation in process, service quality and pricing.

Traditionally, vehicle owners in India have either used high-priced service outlets run by auto manufacturers or relied on local garages with questionable reputations. To solve for this, GoMechanic converted neighbourhood garages into GoMechanic-branded workshops by offering them standard operating procedures, technological support and original spare parts. It wanted to offer a credible and competitively priced alternative to local garages by fixing service quality and removing opacity.

This approach seemed to be a hit with both customers and investors. Starting from a single garage, they scaled up to more than 1100 garages across 40 cities. Along the way, GoMechanic launched its own spare parts business and private-label brands for consumables such as engine oil. Top-tier investors such as Sequoia, Tiger Global and Softbank wanted a slice of the pie - after all nothing is better than a large unorganised market being disrupted by a tech-enabled upstart.

Till recently, GoMechanic was in talks with both Softbank and Kazanah (Malaysia’s sovereign fund) to raise a $75-80M round at a unicorn valuation.

But suddenly, a few weeks back, GoMechanic announced that it would be laying off more than 70% of its workforce and the remaining employees would be working without pay for the next three months. The funding process stalled because of accounting irregularities unearthed during the due diligence process throwing the company into chaos.

So what went wrong?

While the company started with the idea of providing standardised services at a lower cost, GoMechanic had to come up with other business verticals to keep partner workshops engaged. It diversified into selling spares, came up with its private label and experimented with ideas like entering the two-wheeler repairs segment. It even expanded into countries like Kenya and Malaysia.

In order to make the unit economics work for its core business, GoMechanic had to increase its average order value for a low-frequency use case - car repairs. Most customers visit a garage at most 2 to 3 times a year. Hence, it wanted to own the complete value chain to extract the most value from each transaction.

Where they faltered:

• Spare Parts: GoMechanic had pinned its hopes on scaling the white-labelled spare parts business. They tried to undercut auto OEMs and burnt a lot of capital in the process. The spare parts value chain is tightly controlled by the auto manufacturers - they have strong delivery networks across the country. The only way to beat them was to offer more discounts which did not work in GoMechanic’s favour.

• Private Label: GoMechanic launched its own private label products for consumables like engine oil and bike oil to improve margins. This initiative also failed to pick up scale with customers continuing to push for branded products. GoMechanic began to force its partner workshops to accept products as payment instead of cash at the end of the month. This led to resentment with their partner garages.

• International Expansion: GoMechanic’s ill-fated global expansion to countries like Malaysia and Kenya for supplying auto spare parts did not materialise as planned. This contributed to the high cash burn and increase in working capital requirements.

• Bike services: GoMechanic’s expansion into bike services did not solve its low average order value and high CAC problems. Poor unit economics contributed to the cash burn without any incremental revenue.

As a result of poor unit economics in its core business and most experiments not working out, GoMechanic was stuck with a very high cash burn and a long cash conversion cycle building up to a working capital crunch. To conserve cash, it had to eventually cut back on marketing that impacted the number of service bookings generated for its partner workshops, further exacerbating the resentment and cash flow concerns.

Cooking the books

The due diligence process as part of the latest fundraising found gross irregularities in GoMechanic’s books. A good number of service centres were found to have violated accounting norms to overstate revenue and divert funds. Some of the garages were even found to be fictitious.

SoftBank and other prospective investors immediately pulled out of the deal and informed existing investors of GoMechanic, which include Sequoia and Tiger Global. While this was happening, the founders of GoMechanic, themselves confessed in front of their existing investors about the irregularities.

One of the founders even put up a Linkedin post admitting to the irregularities that since gone viral.

Immediately after this discovery, the accounting firm EY was appointed to conduct a forensic audit to get to the root cause of the issue.

Plan forward

Given its tight financial situation, GoMechanic had to lay off 70% of its workforce and the remaining were asked to work without pay for the next 3 months. The business is being completely restructured. In a capital-intensive business like automobile repair, GoMechanic’s future hinges on its next capital raise. GoMechanic’s future can now pan out in one of two directions – either getting acquired by an OEM/rival for its existing technology, or a change of management with a fundraise at a lower valuation.

However, even if it manages to survive, it will still be dealing with the intrinsic challenges of the sector, which have felled many in the past.

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Till then, stay warm and have a cozy and productive week!

Peeyush and Mohit

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