Investors demanding profits from companies; OYO’s fundings shrink.
Budget hotel room aggregator OYO Rooms has lowered its sights and is now looking for at least a quarter of the $400 million it had set out to raise last November, according to three people familiar with the developments, as overall fundraising environment slows and competition intensifies in the Indian online hotel aggregation space.
As a result, the Gurgaon-based company, which is backed by Japan’s SoftBank, could also find it tough to close its acquisition of smaller rival ZO Rooms, a deal which has been in the works for four months now, the sources said.
“They (OYO) have tested the market and no one is biting,” said one of the people quoted above. Soft-Bank “has stepped up and is likely to invest $50-80 million in the company”, he said.
OYO, was aiming for a valuation of over $600 million in this round. Apart from OYO’s difficulties in closing a new round of funding, disagreement between shareholders at OYO have also contributed to the delay in completing the acquisition.
OYO had agreed to buy ZO Rooms for a stock swap of 7% in the Ritesh Agarwal-founded startup, when it valued itself at $400 million. While the handover of business and workforce has been done, OYO has still not signed official papers to close the deal, the sources said. In a presentation to investors on February 10, SoftBank had announced the acquisition.
ZO Rooms is backed by New Yorkbased investment firm Tiger Global Management.
A representative for OYO said: “We do not comment on market speculation and rumours”, in an email response to a detailed questionnaire sent by ET. A ZO Rooms spokesperson declined to comment.
One of the most watched startups of 2015, OYO’s difficulties in fund-raising comes at a time when travel portals MakeMyTrip and Goibibo — both of which have raised new rounds of funding — plan to invest in the white-label hotel business.
Also queering the pitch for the Gurgaon-based startup, is the tightening of deal flow as investors scrutinise costs, operations and demand profits from companies, more accustomed to discounting in order to win more customers.
Last fortnight, the valuation of India’s most valued internet company, Flipkart was marked down by 27% by one of its investors Morgan Stanley. Given the changing environment, OYO has reached out to several strategic investors in online travel and etailing space over the last few weeks to come in as the lead investor in its round of funding. But the startup has not found any takers as yet, said people privy to details.
The delay in fund-raising has put a stop to break-neck expansion of the OYO network, which also included international markets. Between closing a round with Soft-Bank in August 2015 till end of the year, OYO expanded its network from 12,000 rooms across 1,200 properties in 73 cities to 45,000 rooms in over 4,000 properties in 165 cities.