Oyo, the Indian budget-hotel chain startup, is currently in negotiations with investors to secure a new round of funding. However, sources familiar with the matter have revealed that this funding may significantly reduce Oyo’s valuation to $3 billion or even lower. The startup is said to be engaging with investors, including Malaysia’s sovereign wealth fund Khazanah, for this new funding. It is also likely that there will be secondary transactions involved, which could value Oyo as low as $2.5 billion.
This potential drop in valuation would be a significant decline from Oyo’s peak valuation of $10 billion, which was achieved during a previous funding round in 2019. It would also be lower than the total amount of capital that Oyo has raised through equity and debt over the years. While these proposed terms are still subject to change and the funding round may not materialize, it is clear that Oyo’s valuation is under scrutiny.
The fact that Oyo’s valuation may be cut comes as no surprise considering SoftBank, which owns more than 40% of the company, internally reduced its valuation to $2.7 billion in 2022. Oyo had disagreed with this markdown, stating that there was no rational basis for it. The startup, backed by investors such as SoftBank, Airbnb, Peak XV Partners, and Lightspeed Venture Partners, has denied the rumors about the valuation cut and emphasized that there is no concrete transaction or valuation discussion at this stage.
The new funding deliberations come after Oyo withdrew its draft red herring prospectus for an initial public offering (IPO) for the second time. The startup had originally filed for an IPO in 2021, aiming to raise $1.2 billion at a valuation of $12 billion. However, India’s market regulator, SEBI, has not yet approved Oyo’s application for an IPO.
Despite these challenges, Oyo’s founder and chief executive, Ritesh Agarwal, remains optimistic about the company’s performance. He reportedly informed employees that Oyo expects revenue for the fiscal year ending in March to exceed $682 million.
The potential drop in Oyo’s valuation highlights the challenges faced by the company as it seeks to secure additional funding and pursue its IPO plans. It also raises questions about the sustainability of Oyo’s business model and its ability to generate substantial returns for investors.
The COVID-19 pandemic has had a significant impact on the hospitality industry, and Oyo has not been immune to these challenges. The startup, which operates on a franchise model, has faced criticism for its aggressive expansion strategy and alleged issues with quality control. These factors, combined with a decline in travel and tourism due to lockdowns and travel restrictions, have likely contributed to Oyo’s current valuation concerns.
As Oyo continues its negotiations for funding and awaits regulatory approval for its IPO, it will need to address these challenges and demonstrate its ability to adapt and thrive in a post-pandemic world. The company will also need to rebuild trust with investors by providing transparency and delivering on its promise of higher earnings.
In conclusion, Oyo’s potential drop in valuation is indicative of the difficulties faced by the startup as it navigates the aftermath of the pandemic and seeks to secure additional funding. While the situation is still fluid, it is clear that Oyo will need to address concerns about its business model and performance to regain investor confidence. Only time will tell if Oyo can overcome these obstacles and emerge as a stronger player in the hospitality industry.