Treebo Hotels in talks with VC funds to raise $40 million

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Mumbai: Online budget hotel booking start-up Treebo Hotels is in talks with venture capital (VC) funds to raise almost $40 million (about Rs.260 crore) to fund expansion and take on its larger rival OYO Rooms (Oravel Stays Private Ltd), according to three people aware of the development.

“Talks are going on with several VC funds. Treebo is looking to raise a large cheque as the biggest player in the segment—OYO Rooms—is well capitalized and anyone wanting to grow in this segment and give competition to them will need large amounts of money,” said one of the people mentioned above, requesting anonymity. The funds raised would go towards expanding Treebo’s network and marketing efforts, he said.

In its last round of fundraising in June, the year-old start-up raised $6 million from Matrix Partners and SAIF Partners.

The existing investors will be participating in this round too, said the second person. “Treebo is looking at diluting a significant minority stake in this round, almost around 25%,” he said.

While Treebo operates in a similar space as the SoftBank-backed OYO Rooms, its strategy is quite different from that of the bigger rival, said the third person. “Their model is not about adding more and more hotels to their inventory. So, unlike other players who take up part of the inventory from hotels, Treebo usually ties up with hotels for the entire inventory they have,” this person said. This allows the firm to ensure a higher level of standardization and quality of service, he added.

“They currently have a tie-up with over 50 hotels and are planning to ramp that up to at least two to three times in the coming months,” he said.

Emails sent to Matrix Partners and SAIF Partners went unanswered. “We’re a well-capitalized company,” said Treebo co-founder Sidharth Gupta in an email response to questions enquiring about the firm’s fund- raising plans.

Treebo, run by Ruptub Solutions Pvt. Ltd, was founded in March 2015 by Rahul Chaudhary,Sidharth Gupta and Kadam Jeet Jain. Chaudhary and Gupta had previously worked with fashion website Myntra.

Treebo is currently present in 11 cities and is the process of adding more destinations.

In August, OYO Rooms raised $100 million in a Series B funding round led by Japan’s SoftBank Group. Existing investors Greenoaks Capital, Sequoia Capital and Lightspeed Venture Partners also participated in the round.

OYO has so far raised $125 million in three rounds of funding. In February, OYO Rooms was reported to be in talks to acquire rival Zo Rooms. Alibaba Group-backed Paytm in October announced its entry into hotel aggregation. Paytm has partnered with Goibibo, Ezeego1, TSI-Yatra and Via for domestic hotel bookings, and Little for last-minute hotel deals.

“The demand for hotel stays is only going to increase as Indians are travelling more than they used to. However, the challenge for budget hotel room start-ups will be to gain a significant portion of corporate bookings, which is the biggest chunk of hotel bookings,” said Mohit Gulati, founder of venture capital fund Altius Ventures.

Competition will increase as online travel companies, such as GoIbibo and MakeMyTrip, start focusing more on budget hotels too, he said.

Treebo’s effort to raise a large round of funding also comes at a time when overall funding activity in the Indian consumer Internet start-up space has slowed down significantly.

According to VCCEdge, the financial research platform of The VCCircle Network, venture capital activity declined sharply in the first quarter of the calendar year. Transactions fell to 88 in the quarter, from 138 in the year-ago period. Deal value declined to $334 million, from $1.8 billion a year ago.