SoftBank was looking to infuse a whopping US$500 million in this round, but OYO’s early investors opposed the move

OYO Rooms, a leading online budget hotels aggregator in India, is on the verge of closing a US$250 million funding led by its existing investor SoftBank, at a post-money valuation of US$850 million, says a report by The Economic Times, citing sources.

The capital is coming from its newly-launched US$100-billion SoftBank Vision Fund. With this, the Japanese Internet giant’s equity stake in OYO will go up to almost 42 per cent from the 27 per cent it currently holds.

It is not clear as to how many of OYO’s existing investors are contributing to this round. An email sent to its Founder and CEO Ritesh Agarwal did not elicit a response till the publishing of this post.

The Economic Times article reveals the Tokyo-headquartered SoftBank was looking to infuse a whopping US$500 million into this round, but OYO’s early investors opposed the move, because this would give SoftBank over 50 per cent ownership in the firm, and that they will have to dilute their shareholding.

OYO was founded in 2014 by Agarwal, a college drop-out and geek, who plunged into entrepreneurship at the age of 17. He previously founded Oravel Stays, a short-stay accommodation portal, which was funded by VentureNursery, DSG Consumer Partners and Lightspeed. In mid-2014, Oravel was shut down as it failed to scale as expected, and Agarwal started OYO.

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As of last year, OYO operated in more than 170 Indian cities including Delhi, Gurgaon, Mumbai, Bangalore, Hyderabad, Goa, Chennai and Kolkata. These include major metros, regional hubs, top leisure destinations, as well as pilgrimage towns. In January last year, OYO expanded to Malaysia. A few months later, it acquired smaller rival Zo Rooms.

A year ago, OYO Rooms secured US$100 million in its fifth round of funding from SoftBank and an undisclosed international sovereign fund, with participation from existing investors Sequoia Capital, Lightspeed Venture Partners, Greenoaks Capital, DSG Consumer Partners and Venture Nursery. This came in a year after the Japanese firm injected an equal amount into the startup.

Earlier, OYO had secured US$24 million funding led by Greenoaks Capital Partners in May 2015. Prior to that, it received US$650,000 from DSG Consumer Partners and Lightspeed in May 2014.

Last year, serial entrepreneur and Indian startup expert Sumanth Raghavendra wrote a chilling article about OYO, in which he said OYO is equivalent to a Ponzi scheme. In his opinion, the budget hotel aggregator exaggerated the numbers and initiated the steps that took them down the Ponzi rabbit-hole.

In the second part to the report, Raghavendra also made some serious allegations that the SoftBank funding that the startup announced in early 2016 did not actually happen. A few days later, Agarwal hit back at Raghavendra through an internal email to OYO’s employees, saying that calling it a Ponzi scheme is an insult to more than 2,200 of its employees.

Image Credit: OYO Rooms

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