Sources say the start-up’s founders were toying with many ideas after the fundraise and had delegated a lot of the work, which created confusion within the company
Digital wellness platform Mojocare has become the latest domestic start-up to suffer setbacks as governance lapses force the company to trim its workforce and scale down operations. In light of financial irregularities discovered during preliminary investigations, a consortium of investors, led by majority stakeholders Chiratae Ventures and B Capital, has launched a comprehensive review of the company’s financial statements. According to sources familiar with the matter, Mojocare’s downward trajectory began after the successful Series A funding round in August 2022, in which it raised $20.6 million.
“The real story started unfolding after the company raised the $20 million. They were using the funding money at regular intervals. There was extreme exuberance. Initially, the investors did not question the way the founders were spending the money. If I sent a number from an excel sheet, the investors should question how I arrived at them right?” said an employee at the company.
The funding was led by B Capital. Chiratae Ventures and B Capital are Mojocare’s largest investors while Sequoia India (now Peak XV Partners), which invested through its early-stage investment program Surge, does not possess a board seat. It’s other backers include Better Capital and a bunch of angel investors including Vineet Jain (MD, Times Group), Kunal Shah (Founder, CRED), Ankit Nagori (Founder, Curefoods), Adrian Auon (Founder and CEO, Forward), Sajid Rahman (Founder and CEO, Telenor Health), Ravi Bhushan (Founder and CEO, Brightchamps), and Vivekananda HR (CEO and Founder, Bounce).
The Bengaluru-based company said at the time that the new capital would be used to expand its product, content, and care delivery teams, strengthen and diversify its product portfolio, and scale across omnichannel GTMs with a distribution-first approach.
According to another employee, the founders were toying with several ideas after the funding, and delegated a significant amount of work, which resulted in a high level of abstraction within the company’s operations. “They (founders) used to delegate a lot of work. The level of abstraction with which the company was operating was hard to miss. There was confusion, internally and even for the investors because not everything was adding up.”
The delays in Management Information System (MIS) reporting, along with several similar instances of poor governance and fraud documented at other start-ups in India, caused the board to launch an investigation, he continued. The confusions and ensuing business slowdown, he continued, were to blame.
A string of financial scandals over the past year have brought well-funded start-ups like BharatPe, Zilingo, Trell, and GoMechanic to light. Venture capital funds are now under pressure to strengthen corporate governance norms and procedures.
“After receiving money, the targets and additional potential milestone objectives were amended. They could not possibly meet those. The board started to get concerned about the periodic reporting delays and other occurrences, and they noticed that other companies were beginning to have similar problems. As a result, they launched an investigation early this year, and as they had expected, inconsistencies surfaced.
When the company’s financial situation was first investigated, instances of inflated bills and false revenue estimates were found. “Although the research is still in progress, preliminary results have shown financial irregularities, and it is now clear that the business model is unsustainable owing to a number of operational and market problems. As a result, Mojocare will be reducing its operational footprint, and the investor consortium is assisting the business during this transition, according to a statement made by the investor consortium.
After firing 150–170 employees, or nearly 80% of its workforce, the firm made this declaration. Under the guise of being a tiny corporation, the layoffs were announced on Saturday.
The goal was to step in as soon as possible, and it was proactively carried out before the start-up ran out of funding and was forced to close, according to an investor who talked on the record under the condition of anonymity. “Thankfully, a majority of the $20 million it raised in the last round is in the bank, and that opens up opportunities for meaningful conversations around sale or merger, all possibilities are being explored as we speak,” he said.
The investor consortium has chosen Deloitte to perform a forensic audit of the Mojocare’s accounts following the initial probe. With specific questions, Business Today has contacted Mojocare. Upon receiving a response, the copy will be updated.