Oyo in Advanced Talks to Raise Rs 1,000 Crore Amid Valuation Cut, Targets Domestic Investors

Hospitality startup OYO is in advanced discussions to raise around Rs 1,000 crore ($120 million), primarily from the family offices of prominent Indian corporate executives and stock market experts, according to sources familiar with the matter.

Among the potential investors are corporate strategy advisor and former Reliance Industries senior executive Anand Jain, Mankind Pharma promoters Ramesh and Rajeev Juneja, and Utpal Sheth, close associate of the late market maven Rakesh Jhunjhunwala.

Oyo, which withdrew its application for an initial public offering (IPO) last month, plans to hold an extraordinary general meeting (EGM) on Tuesday to approve the fundraising after increasing its authorized share capital.

This funding round is expected to value the SoftBank Group-backed company at approximately $2.5 billion, a significant decrease of 72% from its peak valuation of $9 billion in 2021, marking it as a substantial down round.

" Ritesh Agarwal (Founder and CEO) may raise up to Rs 250-300 crore from Khazanah and the rest from domestic investors," said a person familiar with the matter.

Incred Wealth is assisting Oyo in pitching the fundraising to a group of high-net-worth individuals and has created a special purpose vehicle to issue shares in Oyo’s parent company to the participating family offices.

According to the EGM notice, the startup will initially consider raising around Rs 500 crore. "The total funding, including contributions from family offices and institutional investors, should be finalized by the end of the month," said another source.

"Most contributions will average Rs 15-30 crore, but some may be higher," another person added. "Investors entering at this valuation can still achieve good returns if an IPO occurs at a higher valuation."

Oyo, Incred Wealth, and Khazanah did not respond to these queries by press time on Sunday.

In recent weeks, Agarwal has conducted webinars and one-on-one calls to explain his business and company plans to potential investors. At least two investors who participated in these discussions confirmed these details.

In 2022, Oyo's largest investor, SoftBank, reduced its valuation from $3.4 billion to $2.7 billion. These valuations were private and not publicly disclosed by the Japanese investor.

This latest deal is part of a trend of family offices investing in consumer internet firms. Over the past year, startups like ecommerce firm FirstCry, omnichannel jewelry retailer Bluestone, and beauty retailer Purplle have seen significant investments from these investors.

According to senior industry executives, there are about 300 family offices in India currently, which could contribute 25-30% of total startup funding in the coming years. These investors are increasingly investing in 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 profitability potential. Then, they want to invest at an attractive valuation with plans to exit through an IPO or an M&A," one source explained. "The Oyo investment follows this thesis, offering an opportunity to invest now at this price and exit at a higher valuation later. The due diligence on Oyo’s financials has been thorough for this round."

Oyo has withdrawn its IPO applications twice now.

On May 30, CEO Agarwal announced in a post on X that the company had achieved its first annual net profit of Rs 100 crore for FY24. According to a source familiar with its performance, the profit is expected to be higher this fiscal year.

In recent investor meetings, Oyo projected a gross booking value of $1.8 billion for FY25, up from $1.2 billion in FY24. In FY23, its gross order value growth had been flat. For FY25, Oyo has projected revenue of $957 million compared to $657 million in FY24. These figures are unaudited and yet to be filed with the Registrar of Companies.

Like other hospitality companies, Oyo was severely impacted by the pandemic but has since recovered and restructured its business.

In India, Oyo primarily offers hotel aggregation services, while in Europe, it focuses on the home rental business after acquiring Amsterdam-based Leisure Group in 2019. The company operates 95% of its storefronts in core markets like India, Europe, Malaysia, and Indonesia, having exited markets such as the US and China.

Oyo informed potential investors that it is on track to achieve $406 million of adjusted gross profit in FY25, with adjusted EBITDA estimated at $181 million. The company has reduced employee benefit expenses by 82% and marketing and promotions costs by 60%, according to sources familiar with the company’s actions.

The hospitality firm also highlighted its higher-than-industry ‘take rate’ (revenue per hotel booking) and projected a gross order value compound annual growth rate of 28% for FY25-FY29.

Sources noted that Oyo has over $300 million in debt, which it aims to repay by next year.