India lodging start-up Oyo raises US$1.5 billion amid its expansion into US, Europe

Oyo Hotels and Homes is raising US$1.5 billion from founder Ritesh Agarwal, SoftBank Group Corp and other investors, as the India lodging start-up expands into foreign markets such as the US and Europe.

Agarwal, 25, will spend US$700 million to buy new shares in the company as part of a previously reported US$2 billion plan to triple his ownership stake. Existing investors SoftBank’s Vision Fund, Lightspeed Venture Partners and Sequoia India will contribute the rest of the current round.

Agarwal, who founded Oyo in 2013, has built it into India’s second-most valuable start-up with a valuation of about US$10 billion. Its service covers 1.2 million rooms in more than 80 countries, including 590,000 rooms in China. It entered the US earlier this year and now has 7,500 rooms in 60 cities.

The young founder made headlines in July with plans to spend US$2 billion to raise his stake in the company to 30 per cent from about 10 per cent. Japanese banks Mizuho Financial Group and Nomura Holdings are bankrolling Agarwal’s share acquisition, according to people familiar with the deal. He is buying some of those shares from Sequoia and Lightspeed, and will carry out the transaction through an entity called RA Hospitality Holdings, Oyo said.

Agarwal is tripling down on the company he created at a time WeWork’s internal tumult and a string of disappointing initial public offerings are raising questions about start-up price tags. The US$10 billion valuation makes Oyo India’s most valuable start-up after One97 Communications, the parent of digital payments pioneer Paytm. E-commerce giant Flipkart Online Services was acquired by Walmart last year in a US$16 billion deal. SoftBank’s investments lifted the valuations at Oyo, Paytm and WeWork.

Agarwal founded the start-up in his teens after dropping out of college and roaming India on a shoestring budget. The wild, erratic standards at hotels and guest houses he encountered inspired him to start the online service, and the brand now aims to provide travellers a consistent experience.

Oyo mainly signs on hotel owners and then helps them upgrade everything from bathroom fittings to furniture and bedding, and then provides them standardised supplies like sheets and toiletries, and support to train their staff.

It employs hundreds of people in the field who evaluate properties on some 200 factors, from the quality of mattresses and linens to water temperature. To get a listing, along with a bright red Oyo sign to hang street-side as a seal of housekeeping approval, most hoteliers must agree to a makeover that typically takes about a month. Oyo then gets a cut of roughly 25 per cent of every booking. Rooms usually run between US$25 and US$85.