Deal focus: Oyo passes the $1b mark

In the space of 12 months, the valuation of Oyo – an India-based online platform that helps budget hotels market accommodation – has jumped from $900 million to around $5 billion. This reflects the appetite and capacity of the company’s backers, with SoftBank’s Vision Fund among the participants in a $1 billion round that closed last week. But Bejul Somaia, a managing director with Lightspeed India Partners, also sees its as confirmation of Oyo’s unique market position.

“The company’s core business is very strong, growing more than 2.5x year-on-year, and it is economically viable. We expect the India business to break even at the end of this year or early next year. That’s unusual for an internet company operating in the budget segment where business is tough,” he says. “Then there is an appreciation that the model is applicable outside of India, and in China, it could be very large. Finally, the leadership team is exceptional.”

Lightspeed led Oyo’s first institutional round in 2014 alongside DSG Consumer Partners and it has re-upped four times since then as the company raised more than $450 million. Sequoia Capital India and Greenoaks Capital came into the Series A in 2015 and they have also continued to back Oyo, while SoftBank has been involved from the Series B onwards.

During this period, the business has grown to encompass 125,000 rooms in India and 87,000 in China, despite only launching in the country eight months ago. Oyo also has a presence in markets such as Malaysia, the UK, and Nepal. Other initiatives include the introduction of an end-to-end service that manages and leases properties for landlords in addition to marketing them.

Somaia believes the Oyo model works because it uses technology to serve an underserved segment. “Think about how the market is organized today – there are technology providers, online travel agents covering the distribution, and brands that stick their names on properties to give consumers a sense of comfort,” he says. “Oyo provides the full stack and there is certainly no other company providing this to the budget segment.”

The typical target hotel is small-scale and run by individuals with no background in technology, hospitality or marketing. They are unfamiliar with best practices, don’t know how to get discovered online, and have no idea how to price their product offering. Oyo has found this applies as much to developed markets like the UK as it does to India, creating an opportunity for a platform that brings some level of consistency and standardization.

While the fundamental needs in different geographies might be similar, the mode of engagement is not. For example, Oyo’s breakthrough in China is based on being as local as possible. “The way they think about it, they aren’t trying to take Oyo into China. They are asking, ‘If a local entrepreneur tried to copy Oyo in China, what would he or she do?” explains Somaia. 

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• Topics
• South Asia
• Expansion
• Technology
• India
• Growth capital
• TMT
• Softbank
• Sequoia Capital
• Lightspeed Venture Partners