Sequoia considers auditing South Asia investments as lapses rise

Sequoia Capital's regional arm in South and Southeast Asia is weighing special audits of several investments in the region following allegations of financial irregularities at firms such as Zilingo Pte and 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, according to people familiar with the decision who asked not to be named discussing private information. Sequoia Capital India will also be more selective when taking board seats at companies and, in some cases, might replace junior members from their team on boards with more senior partners, the people said. 

That's a departure from previous practice where Sequoia limited due diligence to companies before investing, the people added.

"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.

Ore Huiying/Bloomberg

Sequoia Capital India & Southeast Asia is the regional arm of the Silicon Valley fund that backed Apple Inc. and Google.

In the latest headache for Sequoia Capital India, a due diligence run by EY on its portfolio company GoMechanic for other prospective investors had unearthed bookkeeping improprieties, missteps the startup's co-founder accepted in a public statement last week. The prospective investor group that hired EY pulled out of talks to fund GoMechanic and informed Sequoia about the lapses, Bloomberg News reported last week. 

Sequoia, which has been backing GoMechanic since 2019 and is its largest shareholder with a 27% stake, according to Tracxn, was not aware of the bookkeeping problems, it said in a joint emailed statement with other investors.

The India and Southeast Asia team had stalled announcing the raising of $2.85 billion across three funds by almost a month, last year, after alleged irregularities at some of its portfolio firms, the people said. 

Since starting in India more than 16 years back, Sequoia Capital India has broadened its geographical reach to Southeast Asia and invested in more than 400 startups. BharatPe and Trell are among other companies backed by them that have faced allegations of flouting rules.