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Softbank May Help OYO Catapult Valuation To $4 Bn In Next Funding Round Of $1 Bn

Softbank May Help OYO Catapult Valuation To $4 Bn In Next Funding Round Of $1 Bn

Oyo is in talks with two consortiums — Softbank Vision Fund and coworking giant WeWork on one hand and a set of US-based strategic investors in the travel space on the other

The funding is expected to be between $500 Mn and $1 Bn, depending on which Oyo's valuation may vary between $4.5 Bn-$5 Bn

If the funding happens, Oyo will enter the coveted unicorn club as its last valuation was $850 Mn

With acquisition and expansion as a key part of its growth trajectory, hotel chain OYO may soon raise nearly $500Mn to $1 Bn in its next funding round, at a valuation of more than $4 Bn, becoming the fifth company to join Unicorn club in 2018.

In a report, ET cited people familiar with the development as saying that the company is in talks with two consortiums— a combination of Softbank Vision Fund and coworking giant WeWork, and a set of US-based strategic investors in the travel space.

With a $4 Bn pre-money valuation, Ritesh Agarwal’s OYO may join the coveted unicorn club of top-valued Indian companies such a Flipkart — $20 Bn and Paytm — $10 Bn.

An email query sent to OYO didn’t elicit any response till the time of publication.

OYO’s Steady Steps Towards Unicorn Status

Even though it is unclear who the investors will be, the upcoming $1 Bn funding round — if it happens — will catapult Oyo into the unicorn club. Its last valuation was $850 Mn when it raised $260 Mn from Softbank and other investors last year.

At present, Softbank is the largest shareholder in OYO with around a 45% share, while other major stakeholders are Lightspeed Venture Partners with 15%, and Sequoia Capital India with around 11%. Founder and CEO Ritesh Agarwal holds 11-12%.

“If Softbank leads the round then they will get close to a majority stake but the management team led by Agarwal will continue to run the operations as they have executed well,” the report added.

Softbank’s interest in OYO falls in line with Softbank chief Masayoshi Son’s continued praise for OYO and Agarwal, describing it as a “next generation hotel company” that is undertaking the “the most advanced hotel management” globally.

In June, while speaking at Softbank’s 38th annual general meeting, Son had said that the Japanese investment giant planned to support OYO through a possible joint venture for its China business, a strategy it has undertaken with a few of its most prominent portfolio companies including WeWork, Uber and Didi Chuxing.

“OYO has got multiple term-sheets and is expected to finalise the deal by the end of this month. Venture capital investors Sequoia Capital and Lightspeed are also participating in the round in a meaningful way,” the report added.

Earlier, OYO had mandated merchant bank JP Morgan to scout for new investors for the funding, and a number of global private equity firms, including General Atlantic and Warburg Pincus, and strategic investors such as Tencent had expressed interest. However, talks with them did not progress.

OYO is also looking to use the fundraising to set up a joint venture for its recently launched operations in China. “The money will be used to deepen the presence in China and also other international markets like Southeast Asia and the Middle East,” the report added.

The hotel chain recently announced its foray into China, stating that it had 50,000 rooms in the country across 50 cities, having started operations there nine months ago.

OYO: Room For Further Growth

On its home ground — India — OYO is close to profitability with an estimated 100K exclusive rooms under its management and a presence in 230 cities.

According to OYO’s regulatory filings, it recorded a decrease in its losses in FY 2016-17 to $54 Mn (INR 363.7 Cr). The company recorded a revenue of $19.2 Mn (INR 125 Cr) in FY 2016-17.

Here’s a quick summary of all OYO has been doing:

  • Between January and June, its hotels in India is speculated to have clocked 17 Mn booked rooms nights
  • In last few years, the company has also doubled the commission it charges from hotels to over 20% from 11-12% last year to keep afloat
  • At the same time, it has adopted a franchise model where it takes control of the entire property with standard amenities, which has helped improve customer experience
  • The companty claimed that its current GBV run rate has touched the $400 Mn mark and its quarterly realised room nights and revenue (net of discounts, cancellations and future bookings) have grown by about 12x in the last two years.
  • The company recently made three acquisitions — Mumbai-based Weddingz, an online marketplace for wedding venues and vendors, Chennai-based service apartment operator Novascotia Boutique Homes and IoT technology venture AblePlus
  • After China and Indonesia, the company has been speculated to be exploring the US and UK markets as well
  • Recently, OYO board approved ESOP Plan 2018 focussed for its employees in India

With a potential grand entry into the Unicorn club and a stronger presence in China, OYO is expected to grow by further leap and bounds after the funding.

[The development was reported by ET.]