Oyo in Talks to Raise Funds from Softbank, may Enter Unicorn Club
Bengaluru: Hotel aggregator Oyo Rooms is in talks to raise about $300-500 million (`2,000-3,330 crore) from SoftBank Vision Fund, according to three people aware of the negotiations, which could result in the largest financing round in India’s startup sector since November 2015.
The deal, if successful, could value the Gurgaon-based startup — founded in 2012 by 23year-old Ritesh Agarwal when he was still a teenager—at $1.2 billion (`8,000 crore) making it the latest member of the Unicorn club.
The large capital infusion will give Oyo Rooms the muscle to compete with rivals like the Makemytrip-Ibibo combine as well as counter newer threats from overseas players like Priceline-owned Bookings.com, said investors tracking the space.
The deal will also give SoftBank — founded by Masayoshi Son — a larger role in the Indian travel market, where online penetration is much higher as compared to retail. SoftBank is the largest investor in the beleaguered online marketplace Snapdeal.
“Besides SoftBank, other new or existing investors may also invest in the round,” said the source directly familiar with the development. “Oyo is getting a pre-money valuation of $700-750 million.” Pre-money valuation is the worth of a company before the capital is infused. Oyo was valued at $460 million when it last raised capital in August 2016.
SoftBank will likely hold over a 50% stake in Oyo if the transaction goes through, said the three people cited above.
It is already an investor in Oyo, having invested $120 million across two rounds in 2015 and 2016 for over 25% stake in the company.
SoftBank Vision Fund, a $100billion fund launched by the Japanese telecom and internet major last year, also includes capital from Saudi Arabia’s sovereign wealth fund and iPhone maker Apple. “We do not wish to comment on funding and future investments at this stage,” said Agarwal in response to ET’s queries. “SoftBank has been a valued partner as we continue on our path to transform the hospitality space in India by enabling quality living spaces through both exclusively managed OYO Rooms and selfoperated Townhouses.” “We do not comment on speculation. SoftBank is deeply committed to its portfolio companies in India and elsewhere and actively helps them to grow their business,” said a SoftBank spokesperson in an emailed response.
The final contours of the deal will depend on how much the company and its existing investors are willing to dilute, said one person familiar with the development. A second source said the capital will most likely be infused in tranches, but this could not be confirmed. Other major investors in the company include Silicon Valley venture capital firms Lightspeed Venture Partners and Sequoia Capital India, besides Green Oaks Capital
The funding will help Oyo further expand its network of 7,000 hotels and 70,000 rooms in 200 Indian cities. Key to expansion plans will be its new initiative called Townhouse, which targets the mid-premium segment as compared to budget segment for Oyo Rooms. The startup is taking properties on lease in order to control customer experience in Town- house Properties, four of which have already opened in Delhi and the Gurgaon area.
Oyo plans to introduce 200-250 Townhouse properties across the country by end of the year. The company has also started international expansion, first with Malaysia and will expand to other geographies, said one of the sources mentioned above.
Online travel market is expected to grow from $11 billion in FY16 to $18.9 billion by FY20, according to a Goldman Sachs report dated October 2015. Online retail on the other hand is expected to reach about $68 billion by FY20, according to the same report.
But online travel is much more mature, as penetration of online in overall retail market is just 2-3%, while it stands close to 50% in air ticket booking and around 15% in hotel booking, according to industry executives. And unlike online retail where majority payments are cash-on-delivery, most payments in online travel are digital making the market relatively more profitable.
In online travel, booking hotels earns 15-20% commissions while air travel gets 6%, making hotels a much more profitable proposition. Over the last two years, action has shifted to this market.
SoftBank’s interest comes at a time when the space is seeing consolidation, as Nasdaq-listed Makemytrip merged with South African media giant Naspers-backed Ibibo Group in a deal which values combined entity at close to $3 billion. Yatra, another online travel agency, was listed through a reverse merge on Nasdaq.