How Mojocare unravelled after $20 million Series A funding round

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.”  

He further stated that the confusions and subsequent business slowdown led to delays in Management Information System (MIS) reporting which, coupled with several such instances of misgovernance and fraud being reported at other start-ups in India, prompted the board to initiate an investigation.  

In the past year, a wave of financial scandals has cast a spotlight on well-funded start-ups such as BharatPe, Zilingo, Trell, and GoMechanic. As a result, venture capital funds have been compelled to reinforce corporate governance standards and practices.  

“The targets and other potential milestone goals were revised following the funding. Surely, they couldn’t meet those. The delays in periodic reporting and other instances began to worry the board, and they were seeing similar instances emerging with other companies, so they initiated an investigation early this year and as suspected, irregularities popped up,” the employee said.  

The initial investigation into the financial health of the company discovered instances of exaggerated bills and misrepresented revenue figures. “While the analysis remains ongoing, initial findings have uncovered financial irregularities, and it has become apparent that the business model is not sustainable due to a variety of operational and market factors. As a result, Mojocare will be scaling down operations and the investor group is working with the company through its transition,” the statement issued by the investor consortium said.  

This statement came after the company fired about 80 per cent of its employees, or 150-170 people. The layoffs were announced on Saturday under the pretext of operating as a small firm.  

According to an investor who spoke on the condition of anonymity, the idea was to intervene as early as possible and it was proactively done before the start-up exhausted all the capital it raised and is forced to shut shop. “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.

After the initial investigation, the investor consortium has appointed consulting and accounting firm Deloitte to conduct a forensic audit of the Mojocare’s accounts. Business Today has reached out to Mojocare with specific queries. The copy will be updated with its response.