Capital Concern Behind the Speed of OYO Repurchase of Investor Equity

category:Finance
 Capital Concern Behind the Speed of OYO Repurchase of Investor Equity


The investment is Indias most significant managerial takeover led by the founder, and Lightspeed Capital and Sequoia Capital (India), an early supporter of OYO, are selling some of their stakes to help the founder increase his stake. Founders have invested $2 billion in their companies and repurchased some of the old stocks of early investors. Such financing is rare in venture capital circles.

According to the Times of India, Li Taixis stake will grow from 10% to 32%-33% and become the second largest shareholder, after Softbank owns 45.69% of OYO through multiple rounds of investment, the first largest shareholder. As early as 2017, OYO signed an agreement with its original shareholders to restrict Softbank, its main investor, to increase its share-holding ratio to more than 50% without the prior consent of the founder and the largest minority shareholders.

Sources say Softbank bought back some shares from OYO investor Greenoaks a few months ago. Softbanks move led Li Taixi to discuss increasing control of the company by himself and management, which was not officially confirmed. But Ola, an Indian online car platform, and Snapdeal, the founder of an Indian e-commerce company, had taken similar measures to limit the proportion of Softbanks shares and fight for the companys voice.

In the investment circle, Softbanks investment style is known for its radicalism. It often makes great strides and surges. Its investment in projects such as Droplet, Grab and WeWork in China is at the level of billions of dollars.

High valuation and huge financing, as well as the high dependence on capital blood transfusion of the model itself, make it difficult for OYO to find suitable investors in the primary market. Recent negative news about OYO such as owners termination, OTA blockade, layoffs and financing hindrance may also cause the capital choice to wait and see. OYO does need to do so. New capital moves are encouraging, even if they are proactive.

In the industry, OYO is known as a blindfolded financing monster, and the media often compare it with Ruixing and Jiduo. According to the authors statistics, OYOs financing scale has exceeded US$1.7 billion since its inception, and more than US$1.3 billion has been invested in Softbank, Grab, Droplet and Airbnb since 2018 alone.

OYOs valuation has approached 10 billion US dollars under the pressure of capital. In terms of market value, OYOs volume is second only to Huazhu Group. In addition to the scale of financing, what is even more amazing is the speed of OYO expansion and money burning. According to the latest official data, the number of rooms managed by OYO hotels and residential buildings is 1 million, with more than 200,000 rooms in India.

Behind the frantic expansion is OYOs low threshold, free franchise and multi-form franchise subsidies, which makes OYO burn money seriously. In the internal letter, the founder said that he has invested 3 billion yuan in OYO hotel. Whether its buying Leisure Group for 360 million euros or paying the US Corps and Ctrip high passage fees, OYOs demand for capital is particularly urgent in the fierce market competition.

For investors, in order to achieve economies of scale, the number of hotels and renewal rate are the core indicators. In order to attract more hotel owners and stable franchisees, OYO launched a bottom-guaranteed revenue 2.0 model, which converts the previous cooperation mode from commission to providing bottom-guaranteed revenue to businesses, and the revenue exceeds the bottom-guaranteed revenue. Share, which will also boost operating cost expenditure.