Oyo’s Ascent Continues Despite High-Spend Warnings

Morning Markets: Oyo is raising another $1.5 billion, partially from its founder.

A few months ago, we reported that Oyo, the popular India-based hotel startup, was raising new capital. That wasn’t a huge surprise: The company has raised a number of rounds and piles of money during its relatively short life ($1.7 billion according to Crunchbase data, before today’s new round).

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And, in an era that has brought us the high-growth, high-spend success story of Luckin Coffee, and the high-growth, high-spend cautionary tale of WeWork, the fact that Oyo was looking to take on new funds wasn’t a surprise.

Today we got a clearer look at what is going on. According to Bloomberg, Oyo is raising $1.5 billion more, inclusive of $700 million from its founder.

How might the founder be able to buy so large a piece of the company? At least in July, the founder’s plan was to use external capital to buy shares from the company’s existing investors, making the deal a large secondary transaction. Now, however, things could look different. Back to Bloomberg:

Agarwal, 25, will spend $700 million to buy new shares in the company as part of a previously reported $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.

In this telling, the CEO is working with its existing venture capitalists to buy new shares in the company. Previously, it was reported that the CEO was going to buy secondary shares from its investors. So it’s a bit confusing. What does seem limpid, at least, is that the company is raising new money. We’ll figure out the rest as we go.

I bring all this up for a reason. In July, when we covered Oyo’s news, I called the decision of the founder to boost his stake in the company as bullish. A lot of folks disagreed. Using someone else’s money to buy out existing investors was, in their view, more bearish than anything. (This is due, I presume, to the fact that some early investors were at least considered at the time to be willing to part with their shares far before a traditional liquidity event.)

The new round also fits into a theme we’ve all noted in recent years. It goes something like this: The more exotic a financing path that a startup takes, the less good that turns out to be. Consider SoftBank’s very complex Uber transactions or the entire makeup of WeWork’s financial structure. Simpler companies, like  SaaS startups that have gone public this year, haven’t had to deal with similar issues.

Oyo may indeed continue growing and expanding, go public, and make everyone involved quite wealthy. But standing where I am today, its growth story is impressive, but its complicated financing efforts are a bit of a worry.

Illustration: Dom Guzman