Even for 2018, this is very 2018.
News broke this morning that OYO, an Indian company that provides budget hotels, has raised new capital. Normally a transaction of this sort wouldn’t hit our radar—hospitality is a bit afar from the world of high-growth startups and their attendant sectors and investors.
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Not this time.
OYO has raised new funds to the tune of $1 billion, a staggering amount of capital for any company, let alone a firm that isn’t well known and operates in a sector that doesn’t normally attract growth capital of this sort. But in this case, it’s a very us story: OYO is a SoftBank-fueled affair.
You likely already guessed that its latest round included participation from SoftBank’s Vision Fund, a capital vehicle with an itchy trigger finger and a seemingly bored and restless investing disposition. But the SoftBank-OYO relationship is older than just this one round.
Indeed, per Crunchbase, SoftBank led OYO’s Series B ($100 million), its Series C ($90 million), and its Series D ($250 million) before today. That’s an incredible string of checks for any company to raise, let alone for one company to lead.
So what does OYO do? TechCrunch’s Jon Russell has some good notes:
“OYO was started in May 2013 by Thiel Fellow Ritesh Agarwal, who was then aged 19. The company aggregates budget hotels and hostels in India, ensuring that they include minimum standards such as clean sheets, hot showers and free WiFi. It has since branched out into other kinds of lodgings, and verticals that include wedding planning.
Today, OYO claims to have over 10,000 franchised or leased hotels in its network, which it says spans 350 cities across five countries. The company announced an expansion beyond India into China this summer and it is also present Nepal and Malaysia. More recently, it recently entered the UK market this month.”
Russell goes on to note that the firm’s Chinese ambitions aren’t small, with OYO claiming nearly 90,000 rooms in the country.
While the model must have some organic legs—I can’t attest to the India hotel market per se, making it hard to comment as to why or why not OYO was founded there and what market gap it serves—it’s worth noting that many countries already have what OYO promises: clean and decently-equipped hotels. I wonder if that will cap its rapid growth in time.
But even more, it’s a bit hard to see why the Vision Fund is interested in the company. After all, we’ve been told that the Vision Fund, a financial weapon taking aim at growth companies around the world, wants to work on perhaps the singularity or artificial intelligence. Or just big deals with fast-growing companies, as more recent interviews seem to indicate. Whatever. Now it’s hotels, too.
So the Vision Fund, along with Lightspeed and Greenoaks and Sequoia, are in the hospitality business. Either this is brilliant and I’m boring and old, or 2018 is proving to be a bit odder than I could have guessed. That or there just aren’t that many places in the world you can stuff a billion dollars in a single go (aside from the ever-unprofitable Uber, WeWork, Didi, Grab, Lyft, and Go-Jek), so you wind up funding a five-year-old hotel upstart as you have to put the money somewhere.
For the company, it’s a great day. For the investing classes, I’m mostly just confused. So much for margin hunting.