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Oyo Rooms checks into unicorn club with $1 billion fundraise

Oyo Rooms checks into unicorn club with $1 billion fundraise

Wednesday, September 26, 2018 IST

Existing investors including SoftBank Vision Fund, Sequoia Capital and Lightspeed Venture Partners have put in $800 million, with commitments for another $200 million

New Delhi: Hotel chain Oyo Rooms said it would raise $1 billion from Japan’s SoftBank Vision Fund and other investors, making it India’s second-most valuable start-up after Paytm, and the latest to join the coveted unicorn club.

The latest funding values the company at a little less than $5 billion, a more than fivefold jump from the $900 million valuation at which it raised funds in just the previous year, three people familiar with the transaction said. Oyo didn’t disclose the valuation at which the funds were raised. The $1 billion fundraise includes a commitment by some investors to put in an additional $200 million.

Existing investors Lightspeed Venture Partners, Sequoia and Greenoaks Capital have also invested in the current round, the company said on Tuesday. JP Morgan advised Oyo on the fundraising.

The latest funding will give Oyo Rooms, founded by Ritesh Agarwal in May 2013 when he was 19, the necessary firepower to continue its aggressive expansion outside India into China, West Asia and other markets.

China and India are Oyo’s top markets and the company will deploy the maximum resources in these two countries, Agarwal said in a phone interview. In a statement, Oyo said it would invest around $600 million to strengthen its position in China.

“India has 4.3 million unbranded rooms and China has 35 million, but there is only a 25% occupancy rate. We want to change that,” he said. “We are currently focused on Tier-2 and 3 cities in China, however we plan to expand this to Tier-4 and 5 too.”

Mint reported in March that Oyo was in talks with SoftBank to raise $800 million to boost its presence in India, as well as accelerate its international expansion.

After the acquisition of Flipkart by Walmart earlier this year, Paytm is India’s most valuable start-up, valued at over $10 billion.

Gurugram-based Oyo has expanded its presence to five countries in just 10-12 months. The company is now present in India, China, Malaysia, the UK and Nepal.

Oyo plans to expand its presence in South-east Asia and sees West Asia and parts of Europe as potential new markets, Agarwal said, without disclosing details.

“We will continue to explore newer businesses while remaining focused on both organic and inorganic growth,” Agarwal said in the statement. “We will also deploy fresh capital to take our unique model that enables small hotel owners to create quality living spaces, global.”

Oyo has more than 125,000 rooms in India and about 87,000 in China across 171 cities, according to the company.

“Oyo has grown exponentially to become the largest hotel chain in South Asia, and is swiftly expanding to international markets,” said Munish Varma, partner, SoftBank.

Oyo is present in more than 350 cities across the five countries and claims to host more than 125,000 stayed room nights every day.

In September 2017, Oyo raised $250 million, mostly from SoftBank Vision Fund. Sunil Munjal-led Hero Enterprise had also invested in the round, along with Oyo’s previous shareholders Sequoia India, Lightspeed Venture Partners and Greenoaks Capital.

Oyo was one of the breakout start-ups from the funding boom of 2015, raising a surprise $100 million from SoftBank in August that year. But after an expansion spree, the firm, which began as a marketplace, struggled to keep pace as customers complained of poor service and many rooms remained unoccupied.

Over the past year, Oyo has effected a turnaround, driven by its effort to gain full control of the room inventory on its platform. Its occupancy rates and net promoter score (a measure of customer satisfaction) have both improved significantly over the past year, the people cited above said.

The launch of its Townhouse brand in January 2017 played a key part in improving Oyo’s image with customers. Townhouse properties are owned by Oyo and fully managed by the company’s staff—they work like any other branded budget hotel. Townhouse has helped Oyo improve customer service and address the problems of fake bookings and high cancellation rates that it faced under the marketplace model.