Hospitality startup Oyo is at an advanced stage of talks to raise around Rs 1,000 crore ($120 million), primarily from the family offices of top Indian corporate executives and stock market experts, said people aware of the move.
Backers are likely to include corporate strategy advisor and former Reliance Industries senior executive Anand Jain, Mankind Pharma promoter brothers Ramesh and Rajeev Juneja, as well as Utpal Sheth, close aide of the late market maven Rakesh Jhunjhunwala, they added.
Family offices are emerging as a significant source of capital for new-age companies.
Oyo, which withdrew its application for an initial public offering (IPO) last month, will hold an extraordinary general meeting (EGM) on Tuesday to approve the fundraise after increasing its authorised share capital. ET has seen the EGM notice.
The proposed round is expected to value the SoftBank Group-backed company at about $2.5 billion — a 72% cut from its peak valuation of $9 billion in 2021 — marking the deal as a significant down round.
Oyo is additionally in the final stages of negotiations with Malaysian sovereign wealth fund Khazanah Nasional, which is negotiating certain rights before finalising the deal, said the people cited earlier.
“The order book from family offices is now at around Rs 1,000 crore,” said a person aware of deal contours. “(Oyo) also wants to allocate a piece to Khazanah Nasional, as it’s a sovereign wealth fund and adds more credibility to the cap table.”
Average infusion at Rs 15-30 crore
“Ritesh (Agarwal, founder and chief executive) may raise up to Rs 250-300 crore from Khazanah and the rest from domestic investors,” said the person mentioned earlier.
Incred Wealth is helping Oyo pitch the fundraise to a group of high net-worth individuals and has created a special purpose vehicle, which will issue shares in Oyo’s parent company to the participating family offices.
According to the EGM notice, the startup will consider approving an initial fundraise of around Rs 500 crore. “Total (funding), including family offices and institutional investors, should close by the end of the month,” said a person in the know.
“Most cheques, on an average, will be Rs 15-30 crore, but some may be more,” said another person quoted above. “Investors who enter at this valuation can still make good returns in case of an IPO at a higher valuation.”
Oyo, Incred Wealth and Khazanah did not respond to ET’s queries till press time on Sunday.
In recent weeks, Agarwal has held webinars as well as one-on-one calls, explaining his business and company plans to these investors. At least two investors present on the calls confirmed these discussions.
In 2022, Oyo’s largest investor, SoftBank, slashed its valuation to $2.7 billion, from $3.4 billion. These valuations were private and not made public by the Japanese investor.
Interest from family offices
This latest Oyo deal is among a spate of transactions by family offices in consumer internet firms. Over the past year, leading startups such as ecommerce firm FirstCry, omnichannel jewellery retailer Bluestone, beauty retailer Purplle
and others have seen significant investments from these investors.
According to senior industry executives, there are around 300 family offices in India at present and they may end up contributing 25-30% of total startup funding in the coming years. These investors are also coming into late-stage startups ahead of their IPO plans.
“The idea is clear. These are not venture capital investors. They want to know if a startup has a sustainable business model and if it can make money. Then, they want to come in at an attractive valuation with a plan to exit in an IPO or an M&A as well,” said one of the people mentioned above. “The Oyo investment is on the same thesis. There is an opportunity for investors to come in now at this price and exit (at a higher one) a few years later. The diligence has been strong on Oyo financials for this round.”
Oyo has withdrawn its IPO applications twice now.
Inside Oyo
On May 30, CEO Agarwal said in an X post that the company had clocked maiden annual net profit of Rs 100 crore for FY24. According to a person aware of its performance, the profit is likely to be higher this fiscal.
In its recent meetings with investors, the startup has projected gross booking value of $1.8 billion for FY25, after having closed FY24 at $1.2 billion. In FY23, its gross order value growth had been flat. For FY25, it has projected revenue of $957 million compared to $657 million in FY24. These are unaudited figures and are yet to be filed with the Registrar of Companies.
Oyo, like others in hospitality, was hit hard by the pandemic but has recovered demand and restructured business since then.
In India, it largely provided hotel aggregation services, while in Europe, it focuses on the home rental business, after having acquired Amsterdam-based Leisure Group in 2019. It has 95% of storefronts in core growth markets of India, Europe, Malaysia and Indonesia, and has virtually checked out of geographies such as the US and China.
Oyo told prospective investors that it is on track to clock $406 million of adjusted gross profit in FY25, while adjusted ebitda is estimated at $181 million. The company said it reduced employee benefit expenses by 82% and those for marketing and promotions by 60%, said people aware of company action.
The hospitality firm also highlighted its higher-than-industry ‘take rate,’ that is, the money it makes per hotel booking, as well as gross order value compounded annual growth rate of 28% for FY25-FY29.
People briefed on Oyo financials said it has to service over $300 million in debt, which it aims to complete by next year.
