Sequoia mulls auditing South, South-east Asia investments as lapses rise

SEQUOIA Capital’s regional arm in South and South-east Asia is weighing special audits of several investments in the region following allegations of financial irregularities at firms such as Zilingo and GoMechanic.

The venture capital firm will work with Ernst & Young (EY) on some of these audits and will increase budget allocations to help investee companies put governance guardrails in place, said 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 sources said. 

That is a departure from previous practice where Sequoia limited due diligence to companies before investing, the sources added.

“As a matter of practice, Sequoia Capital India & South-east 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 a statement.

Sequoia Capital India & Southieast Asia is the regional arm of the Silicon Valley fund that backed Apple 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. 

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

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

Since starting in India more than 16 years ago, Sequoia Capital India has broadened its geographical reach to South-east 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. BLOOMBERG