Ritesh Agarwal to deploy $2 billion in his hotel startup OYO to boost stake

The capital received through forthcoming primary round will help boost OYO's expansion plan in India, US, China, UK, EU, and Southeast Asia markets

OYO Hotels and Homes, on Friday, said that its founder and chief executive Ritesh Agarwal, will invest $2 billion in the hospitality startup. Agarwal, who founded the hotel chain in 2013 at the age of 19, would make this investment through RA Hospitality Holdings (Cayman). He has signed a $2 billion primary and secondary management investment round and is supported by global institutional banks and his financial partners, subject to regulatory and shareholder approvals, according to the firm. 

The SoftBank-backed company said its strong growth, improved margins, superior improvements in customer experience were behind this move. This makes it one of the first founder and executive-led management purchases in the technology and hospitality sector, globally. Lightspeed Venture Partners, and Sequoia India, OYO’s early supporters, are selling part of their holdings in order to help the founder increase his stake, and thereby commitment, while remaining invested significantly in the company’s long-term mission.

“It is a very exciting time for OYO right now as we make great living spaces come alive across all corners of the world from Texas to Tokyo. Our endeavor continues to be to become the most loved hospitality brand in the coming years,” said Agarwal. “I am deeply humbled and delighted to have gotten the support of all our investors, the board and above all the institutionalized financial partners that have provided the necessary financial support towards realizing this vision. Needless to say, the deal remains subject to shareholder and regulatory approvals,” said Agarwal.

The capital received through the forthcoming primary round will help boost OYO’s expansion plan in India, US, China, UK, EU, and Southeast Asia markets. OYO is increasingly evolving into a real estate service platform with 1 million-plus rooms under its management, globally.

Ankur Pahwa, partner and national leader, e-commerce and consumer internet at EY India, said that a move like this served a couple of purposes in a single stroke. This includes providing the entrepreneur greater shareholding and rights of the company and enabling him or her to capture greater gains as the firm achieves scale and success. “It also provides early investors an exit opportunity with substantial gains having reaped the fruits of their early commitment with capital to the company,” said Pahwa. “These structures with similar construct and differential voting right instruments are certainly going to be used (by other Indian) fast growing companies as well,” said Pahwa.

OYO said this year it has seen a 4.4x year-on-year growth in revenue in June 2019 (vs June 2018), with 1 million rooms under management across hotels and homes; with over 200,000 rooms in India. 

The firm continues to bring its model of combining design, hospitality, and technological expertise to real estate owners around the world. This enables the firm to get a higher return on investments and transform their hotels, thereby significantly increasing occupancy and profitability – in every OYO building. There are over 20,000 of these buildings worldwide.

OYO has attracted marquee investors, including accommodation platform Airbnb, SoftBank Vision Fund, Lightspeed Venture Partners, Greenoaks Capital, Sequoia India, and Hero Enterprise. 

“We have confidence in Ritesh’s (Agarwal) vision for OYO and how the team has come together to build a truly global brand from India. It has been an exciting journey so far and we hope to achieve many more milestones together in the time to come,” said Munish Varma, managing partner, SoftBank Vision Fund.

In June this year, SoftBank Group Corp founder Masayoshi Son said he was expecting OYO to become the largest hotel network in the world. At a general shareholders' meeting in Tokyo, Son had said that OYO was one of the largest hotel networks in India and had become the second biggest hotel network in China in just one year. The company is growing its market worldwide in regions such as the US, UK and Southeast Asia. 

“As the company’s first institutional investor, Lightspeed is fortunate to have been part of OYO’s journey from a fledgling start-up in India to a transformative company in the hospitality industry globally,” said Bejul Somaia, partner, Lightspeed India Partners Advisors. “We remain committed to supporting Ritesh and the OYO team as the company embarks on its next phase of growth globally,” he added.

OYO Hotels & Homes said it is the world’s third-largest chain of hotels, homes, managed living and workspaces. The portfolio combines fully operated real estate comprising of more than 23,000 hotels and 46,000 vacation homes. OYO along with Vacation Homes categories managed by the company under OYO Homes, Belvilla and Dancenter brands can be found in more than 800 cities in 80 countries. These include markets such as the U.S., Europe, India, Malaysia, Middle East, Indonesia, Philippines, and Japan.

“This is the kind of stuff start-ups and ventures investing dreams are made of,” said Mohit Bhatnagar, managing director, Sequoia Capital India Advisors. “We remain committed to supporting this world-class management team as they continue to create living spaces across the world.”