Oyo in talks to raise up to $800 million in fresh funding

New Delhi/Bengaluru: Oyo Rooms has initiated talks to raise $500-800 million in fresh funding, six months after the company raised its last round, four people aware of the development said.

Oravel Stays Pvt. Ltd, which operates Oyo Rooms, is in early talks with existing investors led by SoftBank Group and two new investors to raise its next round in order to increase its presence in the country as well as accelerate its international expansion, the people cited above said on condition of anonymity.

Mintcould not ascertain the names of the new investors Oyo is talking to. Oyo didn’t respond to emails seeking comment. SoftBank declined to comment.

The new funding round, when it happens, will add Oyo to the list of Indian unicorns—start-ups worth more than $1 billion.

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In September, Oyo had raised $250 million, mostly from SoftBank Vision Fund. Sunil Munjal-led Hero Enterprise had also invested in the round, along with Oyo’s previous shareholders Sequoia India, Lightspeed Venture Partners and Greenoaks Capital.

Oyo was one of the breakout start-ups from the funding boom of 2015, raising a surprise $100 million from SoftBank in August that year. But after an expansion spree, the firm, which began as a marketplace, struggled to keep pace as customers complained of poor service and many rooms remained unoccupied.

Over the past year, Oyo has seen a turnaround, driven by its effort to gain full control of the room inventory on its platform. Its occupancy rates and net promoter score (a measure of customer satisfaction), have both improved significantly over the past year, the people cited above said.

The launch of its Townhouse brand in January 2017 played a key part in improving Oyo’s image with customers. Townhouse properties are owned by Oyo and fully managed by the company’s staff—they work like any other branded budget hotel. Townhouse has helped Oyo improve customer service and address the problems of fake bookings and high cancellation rates that it faced under the marketplace model.

Last month, more than two years after removing Oyo from its platform, the country’s largest online travel website MakeMyTrip said it will once again offer the company’s hotel rooms, a move that is likely to further boost Oyo’s sales.

Oyo is present across 230 cities in India, Malaysia and Nepal. Apart from expanding in these countries, the company wants to significantly increase its fledgling presence in China, the people cited above said. Oyo may also enter the UK and US markets after raising its next round, the people added.

Gurugram-based Oyo, which launched its operations in China late last year, plans to grow in that country by franchising its brand. The company will need significant capital to expand in China, given the massive size of the market. It counts hotel management firm China Lodging as one of its investors.

If Oyo’s proposed funding plan fructifies, it will be another signal that investor sentiment toward Indian start-ups is improving. Mint reported on 20 March that after two successive years of poor investment activity, start-up funding may begin improving later this year as secondary share sales, strong performances by Flipkart and other large internet firms, and an expanding internet user base drive an improvement in investor sentiment.

While investors don’t expect the bubble-type scenario of 2015, deal volume is expected to increase this year.

In the meanwhile the OYO in its official statement issued this evening has said that “We clearly deny any rumors around OYO raising fresh investment at this point in time. We are well-capitalized with $250 million in investment and currently focused on our growth story in India and new launches in Malaysia and Nepal. We are happy to be the global pioneer of the full-stack hospitality model and wish to take it to new markets, but our current focus is on deepening our market share in India and driving a valued experience for our customers and asset partners.”

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