Telecommunications and internet group SoftBank is set to lead a $250m funding round for India-based short-term accommodation provider Oyo Rooms, the Economic Times reported yesterday, citing three people familiar with the matter
The round, which will value Oyo at $850m post-money according to the people, will represent the latest large-scale deal for Japan-based SoftBank, which is aiming to hammer home its presence in India’s online services sector.
Oyo partners with hotels to provide a standardised budget accommodation offering that spans more than 200 Indian cities, and which can be booked through the company’s app. It added a service called Oyo Townhouse in January 2017 which aims to combine accommodation with workspaces, hospitality and retail outlets.
News of the latest round follows a report in Hindu Business Line that Oyo plans to double the number of rooms in its network to 140,000 in the next year, with the city of Chennai and its parent state Tamil Nadu seen as a priority.
The funding will support expansion as well as the firm establishment of Townhouse, for which Oyo is forming partnerships with property developers, according to ET.
The size of the round is half the $500m figure cited by reports in February this year, but it will increase SoftBank’s stake in the company from 27% to 42%. The reduction was reportedly due to other existing backers objecting to the dilution of their stakes in a round that would have given SoftBank a majority share of Oyo.
SoftBank is set to supply $225m of the funding through the $100bn Vision Fund it expects to shortly close, with the rest to be provided by other existing backers, and a source told ET that Oyo could be attempting to add a new investor to the latest round.
Oyo had raised approximately $25.5m from Lightspeed Venture Partners, Sequoia Capital, Greenoaks Capital, DSG Consumer Partners and Venture Nursery before SoftBank led a $100m in August 2015 that included Lightspeed, Sequoia and Greenoaks, and which valued the company at $400m.
SoftBank invested $62m in Oyo a year later at a reported $460m valuation, in a round that was reportedly set to be $100m in size. However, none of Oyo’s existing backers was willing to reinvest and the company was unable to secure any new investors.
The corporate has made a series of big bets in India and despite the valuations of some of those companies being cut, it is flush with cash raised for Vision Fund and is looking to double down.
The largest of those deals is likely to be a merger between e-commerce marketplace and portfolio company Snapdeal and its biggest domestic competitor, Flipkart. SoftBank holds a 35% share of Snapdeal and two board seats, and is attempting to broker the deal, after which it intends to provide roughly $1bn for the merged company.
SoftBank could also invest between $1.2bn and $1.5bn in One97 Communications, the e-commerce firm that also owns mobile financial services and payment platform Paytm, in return for a 20% stake. It reportedly invested $250m in on-demand ride platform Ola in February this year as part of a $330m round that boosted its stake to 22.5%.
The strategy would hypothetically give SoftBank a sizeable stake in the market leaders in India for consumer goods, ride hailing and financial services as well as accommodation booking, and would also hypothetically give the companies a common link to each other.
Hypothetically, it would only require a unifying platform – a messaging, social media, e-commerce or search engine app if not an operating system – to unify those through a common entry point. That is the rationale behind the large corporate venturing moves by e-commerce firm Alibaba and Tencent, the owner of messaging app WeChat, in China.
India has the world’s second largest population and its fastest growing e-commerce market, and even though the valuation of some of its largest players has dropped recently, the general trend is toward growth. SoftBank intends to get in on the ground floor, and upping its stake in Oyo is one route toward that overall aim.