OYO Looks To Raise Fresh Funds Via Venture Debt Financing Route

Gurugram-headquartered hospitality chain OYO is reportedly looking to raise fresh funds via venture debt route to double down on its Townhouse property vertical in India in 2019.

The company is in talks with several venture debt firms and some of the top private banks to raise these funds to fuel expansion.  The news comes just a few weeks after it announced the completion of its $1 Bn funding round at a $5 Bn valuation led by SoftBank Vision Fund, Didi Chuxing, Lightspeed India Partners, Sequoia Capital, and Greenoaks Capital.

Push To TownHouse: Why Now?

Ritesh Agarwal-led OYO has been bullish on Townhouse, which it launched in January 2017. Townhouse properties, owned and fully managed by OYO, have played a key role in improving the startup’s image with customers.

A venture debt investor reportedly said, “When they started with the marketplace, they didn’t need any leverage at that point. But once they got into Townhouse, there was a need for investing into the properties, which made them turn to debt financing.”

The focus on Townhouse comes as the equity and preference funding will go mostly to its overseas ambitions and out of which — $200 Mn has been committed to India already. OYO currently has more than 173K rooms spread over 259 cities in India. Internationally, it is operating in 500 cities spread across nine other countries with half a million rooms listed.

The company is now aggressively pursuing its plan to become the world’s largest hotel chain by 2023 and becoming the dominant hospitality player in India and South Asia.

This is in line with OYO’s strategy to expand and capture as much of the opportunity in existing markets, while also identifying new markets where it can meet the demand-supply gap to make the most impact.

The Rise Of Venture Debt Financing

It is interesting to note that OYO — a company with access to huge funds and marquee investors backing it up — has chosen venture debt route along the lines of players such as Swiggy, BigBasket, Raw Pressery and BYJU’s.

On the back of the strong equity funding environment, venture debt market also saw impressive growth, as more and more startups heading towards the debt funding as an alternate source of capital. It is seen as a smart way for startups to raise some additional capital to drive growth while optimising their capital structure and dilution for founders and early-stage investors.

It has been reported that startups will raise between INR 1500-1800 Cr of venture debt in 2019, which will be a healthy 25-30% growth over 2018. In an earlier conversation with Inc42 – Vinod Murali of Alteria Capital — a venture debt fund — has noticed a strong demand for venture debt, much better awareness about the product, a lot more chatter and curiosity around how can this fit into the capital strategies of companies.

As India continues to attract major investor attention, investment firms that are banking on the country’s growing venture debt market include Temasek-backed Innoven Capital, Trifecta Capital, and IntelleGrow among others.

[The development was reported by Livemint.]