SoftBank-backed OYO to be valued at USD 10 billion after talks for USD 1.5 billion fundraise

Funds to be used for expansion of hospitality business in the US and UK markets.

Photo by Stephen Leonardi on Unsplash

OYO Rooms, which claims to own the world’s second-largest chain of hotels, homes, and managed living and work spaces is reportedly raising USD 1.5 billion from a slew of investors in its current round, according to LiveMint. It would be a Series F funding round, which on culmination would value OYO at USD 10 billion and make it India’s second-most valuable startup after Paytm. This would be OYO’s largest fundraising till date.

It’s OYO’s own founder and CEO who is contributing a large chunk of cash in this round. According to a Press Trust of India report,  26-year-old Ritesh Agarwal will be contributing USD 700 million through the Cayman Island-registered RA Hospitality Holdings—a special purpose vehicle. The remaining USD 800 million will be infused by SoftBank Vision Fund, Lightspeed, Sequoia Capital, Greenoaks Capital, Airbnb, and other existing investors.

The Competition Commission of India (CCI) has also given its approval for the latest funding exercise. Earlier this year, RA Hospitality Holdings had got an approval from CCI for a USD 1 billion investment in OYO Hotels and Homes.

The Series F investments will be utilized for the expansion of OYO’s business in the US, according to LiveMint, and for the consolidation of its vacation rentals business in Europe.

“OYO is spreading itself thin by expanding in different parts of the world under different structures,” Chetan Kapoor, the co-founder and COO of Videc, a hospitality and travel analytics and advisory firm told KrASIA. “What started as a standardization of hotel accommodation, has now diversified into cloud kitchen and wedding infrastructure too. OYO just captures an asset and tries different initiatives or strategies to monetize it in different parts of the world. The outcome is yet to be determined as the gestation period is not over. Expanding globally like this affects both the brand and valuation in the future. However, I must congratulate OYO that being just a six-year-old company it has the drive and capacity to be where it is now.”

This latest USD 1.5 billion investment will also be used to partially buy out the stakes held by venture capital firms Lightspeed Venture Partners and Sequoia Capital. Agarwal’s share in OYO will then rise to nearly 30% from the current 10%. Agarwal’s latest investment into OYO will have the backing of the USD 2 to 2.2 billion debt he had raised from a consortium of Japanese financial institutions, including Nomura Holdings and Mizuho. Agarwal’s debt method to infuse primary capital into his own company, and the provision for partial exit to early investors is quite unusual for a startup.

The latest investment in Oyo by its largest investor SoftBank, comes at a time when SoftBank is stricken by the failed initial public offering (IPO) of co-working aggregator WeWork, in which it had invested too. Kapoor chips in, “The fundamentals of running a hotel is different from the fundamentals of running a co-working space. And at the end of the day, a WeWork is not as dynamic as an OYO.” SoftBank is facing more heat as ride-hailing app Uber, in which it had also invested, saw its value drop from USD 76 billion to USD 49 billion after its IPO on the New York Stock Exchange in May.

It was local paper the Economic Times which first reported the buying back of shares of OYO on July 8, 2019. The same media also carried a news item in June, which said OYO will invest USD 300 million to scale in the US. OYO is active in 60 US cities and owns 7,500 rooms.

OYO today is present in over 338 cities in China; over 100 cities in Indonesia; and in 30 destinations across the UK. In a latest development reported by Nikkei Asian Review, the Gurugram-based hospitality decacorn signed a joint venture with SoftBank Group to acquire an 80% stake in the Japanese apartment rental company, MDI for USD 100 million. Japan’s SoftBank owns nearly 45% of OYO.

The six-year-old OYO has as its assets more than 35,000 hotels and 125,000 vacation homes, and more than 1.2 million rooms worldwide.