Oyo in Talks to Raise Funds from Softbank, may En­ter Unicorn Club

The Economic Times - - Front Page - Mad­hav.Chan­chani@ times­group.com

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.

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