China’s internet giant Tencent has held talks to lead a fresh $300-500 million financing round in budget hotel brand Oyo Rooms, two people familiar with the matter said. This is as per a report by the Economic Times.
The latest fundraise is likely to value Oyo at over $2 billion, which is more than double its previous valuation of $850 million when it raised capital last year from existing investor SoftBank through its Vision Fund.
Sources briefed on the matter said Oyo has held discussions with other Chinese companies and a few financial investors as well for the funding. If the investment from Tencent or any of the other China-based strategic players comes through, it will be the first financing round, after 2015, to be led by a new investor other than SoftBank.
A source close to the development said, “The company is engaged with Tencent, and a term sheet is likely to come in. There’s a bunch of other investors also in talks, but those are preliminary at the moment. The fundraise is largely to grow the China business.”
Having started around eight months ago in China, Oyo already employs 2,000 people there, running more than 11,000 hotel rooms in 26 cities including Hangzhou, Guangzhou, Chengdu and Shenzhen, among others. International markets, on the back of the China business, now account for 15-20% of Oyo’s overall revenue. While the company does not disclose numbers, TOI has learnt that Oyo clocked a gross booking value of $500-600 million. “Getting a backer like Tencent will help Oyo grow aggressively in China,” another person in the know said.
The Gurgaon-based company has raised more than $400 million, largely by SoftBank, since it started life as Oravel Stays, an Airbnb clone, in 2012. The Japanese telecom and internet major SoftBank is the single largest stakeholder with 42% in Oyo. The rest is held by other early backers like Lightspeed Venture Partners, Sequoia Capital, and Greenoaks Capital, along with the founder, management and company employees.
SoftBank’s maiden investment in Oyo came in August 2015, when it put $100 million in the budget hotel aggregator. Last year, new investors China Lodging Group and Sunil Kant Munjal-led Hero Enterprise came on board having put in small cheques.
Incidentally, SoftBank has invested majorly in two Indian startups – Paytm and Oyo Rooms, that is, apart from others. SoftBank’s Masayoshi Son has heaped praise on the founder of Oyo Rooms, Ritesh Agarwal, during the 38th AGM of Softbank on the 20th of June.
Oyo operates in three categories — the aggregation business branded as Oyo Rooms, which contributes more than 90% to its revenues, along with Townhouse and Flagship, where the company leases properties and services them for a better quality experience. Oyo is also tying up with developers to build customised properties, which is why the company is not completely asset-light.
Oyo claims almost 80% of its revenues are drawn from hotel owners who are getting their entire business through the company. The full inventory model is a huge change from a year or two ago when players like Oyo would take up few hotel rooms across properties to scale quickly.
There was a news report around the 16th of July that Oyo has commenced operations in London. It now offers bookings in Sussex Gardens, Paddington.