OYO Founder Seeks To Increase Control Over The Company By Buying Back $1.5 Billion Shares

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Ritesh Agarwal, founder of Oyo Hotels & Home, is in the midst of buying back shares from early investors Sequoia Capital and Lightspeed Venture Partners to bulk up his ownership, said three people familiar with the matter. This is as per a report in the Economic Times.

The move, unprecedented among leading privately held, new-age Indian startups, will help Ritesh Agarwal raise his stake to around 30% from the current 10%. This may go up to as much 32-33%, including the stakes held by the management and employees.

To finance the buyback, the 26-year-old founder has been in talks with financial institutions and banks in India, Japan and Europe to shore up $2 billion in secured debt, sources close to the matter said on condition of anonymity.

Oyo is expected to be valued at around $10 billion in what will be a mix of secondary and primary transactions, they said.

In an emailed response to ET’s queries, an Oyo spokesperson said, “As a company policy, we do not comment on industry speculation.”

Agarwal is going to pledge his shares in the process of raising debt, said another source.

“While Agarwal will buy $1.5 billion worth of shares from Sequoia and Lightspeed, another $500 million will come in the form of primary capital. The primary part of the deal may see existing investors also pitch in,” said a person privy to the details. The $500 million in primary capital will go into the company’s coffers, he added.

The Oyo founder, along with the management, will emerge as the second-largest shareholder after SoftBank Vision Fund, which owns almost 48% of the company. As per clauses drawn up by Oyo, the Japanese group cannot increase its ownership beyond 49.9% without receiving approvals from Agarwal, Sequoia, Lightspeed and Greenoaks Capital.

SoftBank had bought back some shares from Greenoaks as part of a secondary transaction a few months ago, said sources in the know. This led to Oyo’s founder starting discussions to raise promoter and management control in the company, said another person familiar with the development. Greenoaks’ stake of 5.76% may have been pared to about 3% post SoftBank’s purchase.

If Agarwal’s repurchase of shares is successful, Sequoia and Lightspeed will partially liquidate their stakes in Oyo and be able to snag bumper returns from their early bet on the company. Lightspeed owns 13.4% of Oyo and has in all invested Rs 158 crore, while Sequoia has ploughed in Rs 165 crore and holds a 10.24% stake, as per Paper.vc, a business signals platform. The two funds also own stakes in Oyo China, which is separate from Oyo Global, which houses the India business. They had invested separately in the China entity last year.

WRESTING BACK CONTROL

Source: Evolve MMA

Agarwal’s bid to regain a substantial stake in the company is the third such attempt by a SoftBank-backed founder in India.

Bhavish Aggarwal, cofounder of ride-hailing platform Ola, was the first to do so, having modified the company’s Articles of Association in 2017. This ensured that any sale among its investors would require board approval, thereby blocking SoftBank’s attempt to partially acquire Tiger Global’s stake in the Bengaluru-based mobility firm.

Source: Biogtown

Online marketplace Snapdeal’s founders Kunal Bahl and Rohit Bansal also undertook a significant recapitalisation at the ecommerce firm. This resulted in a new entity — B2 Professional Services, which is controlled by the founders’ wives — buying out early investors and emerging along with the founder group as the second-largest stakeholder in the company after SoftBank.

Kunal Bahl & Rohit Bansal
Source: India TV

These moves by startup entrepreneurs come as the Securities and Exchange Board of India (Sebi) has approved the issuance of shares with differential voting rights. This allows founders of Indian startups greater control over their ventures even after having diluted a significant portion of holdings while raising multiple rounds of equity financing.

Source: Anblik

The current calendar year has already seen two Indian startups, fintech venture Razorpay and online furniture rental company Furlenco, amending board rights, thereby giving the founders greater voting control.

Source: LinkedIn
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