The founder of SoftBank-backed hotel startup Oyo is buying back shares in his company in a $1.5 billion deal
Category : entrepreneur
- Indian hotel platform Oyo has confirmed that CEO and founder Ritesh Agarwal will raise his stake in his company as part of a $1.5 billion financing round.
- Agarwal is to acquire shares from Oyo’s existing investors Lightspeed and Sequoia to increase his stake.
- The deal will see Agarwal inject $700 million in fresh capital into his company, with a further $800 million coming from existing backers. In total, Oyo will raise $1.5 billion in fresh capital.
- The deal comes as Oyo faces intensifying media scrutiny over its budget hotel platform, and after the canned IPO of another SoftBank-backed property firm, WeWork.
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Ritesh Agarwal, chief executive and cofounder of budget hotel platform Oyo, is to raise his stake in the SoftBank-backed firm in a $2 billion funding deal.
The financing, announced on Monday, is an unusual move for a founder, and see the 25-year-old executive boosting his stake by buying shares from Oyo’s existing backers Sequoia and Lightspeed. The two investors will remain shareholders and committed to the company.
A spokesperson told Business Insider that Agarwal is financing the deal via support from “global institutionalized banks and his financial partners,” without giving specific details.
Along with the buyback, Agarwal and Oyo’s backers will inject $1.5 billion of fresh capital into the business, with $700 million of that coming from Agarwal. The new funding values the firm at $10 billion.
Read more: I spent 24 hours living on SoftBank services like Uber, WeWork, and Oyo. It revealed some flaws in Masayoshi Son’s grand $100 billion investment vision.
Oyo is a fast-growing platform for budget hotels and operates on a franchise basis. The company turns failing local hotels into Oyo franchises, provides some capital to redecorate and ensure there’s functioning WiFi, then sells those rooms through its booking platform. The promise to hotel owners is a boost in occupancy rates and revenue.
The company has expanded to more than 80 countries, including China. It has more than 500,000 rooms on its platform, and says it’s seen a 3.8 times increase in revenue growth year-on-year. It employs some 20,000 staff.
The firm has raised more than $2 billion in total, giving it a massive war chest to fund its expansion.
It has also attracted growing scrutiny from critics and the press, partly thanks to its apparent similarity to another SoftBank backed property business, WeWork. Scott Galloway, an NYU professor who has been heavily critical of WeWork, compared the two. “Just like WeWork, OYO is a REIT [real estate investment trust] with too much SoftBank capital,” he wrote last week.
WeWork’s CEO Adam Neumann announced at the end of September that he would step down and the firm was forced to delay its IPO after an onslaught of negative press about the business model behind its core office sharing offering, its valuation, and unconventional company culture.
Oyo’s business has ballooned beyond budget hotel rooms to office-sharing, student accommodation, high-end Airbnb-style “homes,” upmarket business hotels, and even magazine publishing.