Sequoia To Audit Their Investments in SEA

Following allegations of financial irregularities at firms such as Zilingo Pte and GoMechanic, Sequoia Capital's regional arm in South and Southeast Asia is considering special audits of several investments in the region.

According to people familiar with the decision who asked not to be identified because they were discussing private information, the venture capital firm will collaborate with Ernst & Young on some of these audits and will increase budget allocations to assist investee companies in putting governance guardrails in place. According to the people, Sequoia Capital India will be more selective in accepting board seats at companies and may replace junior members of their team on boards with more senior partners in some cases.

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.

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

In the latest stumbling block for Sequoia Capital India, an EY due diligence on its portfolio company GoMechanic for other prospective investors revealed bookkeeping errors, which the startup's co-founder admitted in a public statement last week. According to Bloomberg News, the prospective investor group that hired EY pulled out of talks to fund GoMechanic and informed Sequoia about the lapses.

Sequoia, which has been backing GoMechanic since 2019 and is its largest shareholder with a 27% stake, said in a joint emailed statement with other investors that it was unaware of the bookkeeping issues.

According to the people, the India and Southeast Asia team delayed announcing the raising of $2.85 billion across three funds by nearly a month last year due to alleged irregularities at some of its portfolio firms.

Sequoia Capital India has expanded its geographical reach to Southeast Asia and invested in over 400 startups since its inception in India more than 16 years ago. Other companies backed by them that have faced allegations of rule violations include BharatPe and Trell.