Oyo Rooms, an India-based budget hotel room aggregator backed by telecom and internet group SoftBank, secured $61.3m in equity financing last week as two of its competitors are also at various stages of raising cash, suggesting the sector is going through a boom time right now.
Oyo received the cash from undisclosed existing investors at a pre-money valuation of $400m, according to the Economic Times, which reported it also set to buy back $9m of shares from an existing early-stage backer.
The round followed a $100m series B round led by SoftBank in August 2015 that also featured venture capital firms Lightspeed Venture Partners and Sequoia Capital, and investment firm Greenoaks Capital that also valued Oyo at $400m. Press reports in April this year stated Oyo had raised another $100m from existing backers but as the company has not confirmed the round, that amount is likely to represent the initial target for its latest round.
Oyo had previously raised $25m in March 2015 from Lightspeed, Sequoia and Greenoaks, as well as $500,000 in seed capital from Lightspeed and DSG Consumer Partners the year before. VentureNursery was Oyo’s first backer in 2012.
Founded in 2012, Oyo oversees an online-based business that enables users to book rooms in the company’s network of budget partner hotels, which stretches across more than 190 Indian cities. The rooms are branded and standardised by Oyo, ensuring its customers can expect a minimum level of service and amenities regardless of which hotel they choose.
Oyo is not the only Indian player in the sector to secure corporate funding recently. FabHotels picked up $8m in a series A round featuring mobile semiconductor producer Qualcomm at the end of June, while Treebo is in talks with media firm Berteelsmann’s local investment arm over a round that is expected to close at between $20m and $25m.
Although all three startups pursue similar business models, Treebo and Oyo differ slightly in that Treebo takes the entire inventory of a hotel, rebranding it as a Treebo Hotel, whereas Oyo generally takes only some rooms.
Oyo is however expected to spend some of that $61m to move closer to the Treebo model by taking over entire hotels as part of its Flasgship service, which involves it offering a more premium service to customers, expanding its product range at the same time. The company is also in talks with state governments to enter the homestay and bed and breakfast sectors.
The relative ubiquity of the branded budget hotel experience in India represents an interesting contrast to the US, where the space has largely been taken by the homestay-oriented Airbnb, along with other, similar startups.
India is actually one of Airbnb’s fastest growing markets – the company’s Indian manager Amanpreet Bajaj told UAE daily The National last month its Indian listings had risen by 115% over the past year to more than 18,000 – and regulatory issues have been less cumbersome than in other countries, so some homegrown competition in a market as big as India would be expected.
For one reason or another, that has not happened. Perhaps the hotel chains’ dominance of the US budget market makes Oyo’s business model less feasible there, or maybe Indian customers prefer a branded experience when it comes to the online sector, but either way, it appears as if Oyo’s approach is the one that works. The question in the long run is whether its partnership model and the branding required as part of it can prove as profitable as that of its competitor.