Indian budget hotel aggregator Oyo raises $62m from SoftBank

Oyo Rooms

Budget hotel aggregator Oyo, owned by Oravel Stays Pvt. Ltd, has raised Rs.413 crore (around $62 million) from Japan’s SoftBank Group Corp. at a time when investors have become ultra-cautious about their bets on Indian start-ups.

Documents filed by Oyo with the Registrar of Companies and reviewed by Mint confirm the investment.

According to three people familiar with Oyo’s fund-raising plan, the hotel aggregator had been looking to raise $100 million.

None of Oyo’s other existing investors—Greenoaks Capital, Sequoia Capital and Lightspeed Venture Partners—participated in this round of funding, according to the documents.

Oyo did not respond to an email seeking comment. SoftBank declined to comment on the funding.

Oyo was looking to raise Rs.413 crore through a proposed rights issue of shares to its existing shareholders, Mintreported on 8 July, citing documents filed with the Registrar of Companies. The company was also looking to buy back shares from existing investors for around Rs.60 crore, the documents said, without revealing the names of the stakeholders.

SoftBank, along with several growth-stage funds such as Tiger Global Management, DST Global, Falcon Edge Capital and Steadview Capital, among others, have scaled down investments in India this year amid concerns about the valuations of start-ups.

SoftBank has championed Indian start-ups since 2014, backing e-commerce platform Snapdeal, ride-hailing service Ola and real estate website Housing.

Between October and December 2014, SoftBank invested about $1 billion in these three companies and committed another $10 billion to India in the next 10 years. The company subsequently invested in Snapdeal, Ola and Oyo in 2015.

With Snapdeal slipping to the third spot in the Indian online retail space behind Flipkart and Amazon and Housing experiencing a rough patch amid the exit of controversial co-founder Rahul Yadav, SoftBank has barely made a move in India this year, barring a $15 million bridge round of funding in Housing in January.

The fresh infusion of capital in Oyo, which according to the documents was allocated on 22 July, is the first investment by SoftBank in Indian start-ups since Nikesh Arora, heir apparent to the chief executive officer’s role at SoftBank, said in June that he was leaving the Japanese company after founder, chairman and CEO Masayoshi Son, who had been expected to step down after turning 60 next year, said he will remain at the helm.

Arora stepped down as representative director, president and chief operating officer of SoftBank on 21 June and assumed an advisory role effective 1 July.

Oyo last raised $100 million in a Series B funding round led by SoftBank, with participation from existing investors, in the biggest ever funding round in an Indian budget hotel aggregator. The company had earlier raised $25 million in Series A funding from Sequoia Capital, Greenoaks Capital and Lightspeed Venture Partners in March last year.

While investors have become cautious on their Indian bets, three more start-ups in the budget accommodation segment have raised funds from venture capital firms in the recent past.

Bengaluru-based Treebo Hotels (Ruptub Solutions Pvt. Ltd) raised Rs.112 crore in a Series B round led by Bertelsmann India Investments. Another start-up, FabHotels, raised around Rs.54 crore in a Series A round from Accel Partners and RB Investments in June. Treebo and FabHotels do not lease properties, but run them on a franchise model.

Stayzilla, which aggregates homestays and budget hotels,raised about $13 million in a Series C round from existing investors Matrix Partners and Nexus Venture Partners in May.

In the last few months, Oyo has expanded its focus from its core of budget hotel aggregation to offering holiday packages encompassing transportation, other assisted services and local activities.

The company has also started leasing properties under a programme called Oyo Flagship, which allows the company complete control over day-to-day operations at these establishments, which in turn improves customer experience.

This was a departure from Oyo’s earlier strategy of booking a part of hotels’ inventory and holding it captive for Oyo customers.

Oyo claims to operate in more than 170 Indian cities. The company currently claims to have 68,300 rooms across 5,855 partner hotels in India and aims to triple inventory by the end of 2016.

In January, it started operations in Malaysia, its first venture outside India.

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