Mumbai: Budget hotel aggregator Oyo Rooms is in talks with Japan’s SoftBank -an existing investor -for a $500million round of financing, which is expected to catapult it into the so-called unicorn club, comprising tech startups that are valued at $1 billion or more, according to three people privy to the development. Oyo is likely to rack up a valuation of $1.2 billion after the investment, said sources who did not want to be named as the talks are private.The Gurgaon-based company is currently valued at $460 million.

The raise, when completed, will emerge as one of the largest mid-to late-stage investment deals in the fledgling consumer internet economy, which was flush with investor capital till about a year ago but has seen a perceptible slowdown since then.

SoftBank’s maverick founder Masayoshi Son, who recently launched a $100-billion technology fund with partners like the Saudi Arabian government and Apple, has said he’s committed to India even after the abrupt exit of president Nikesh Arora, his anointed successor. The Japanese internet and telecom major’s investment in Oyo will be routed through the $100-billion Vision Fund, sources said. SoftBank’s other consumer tech investments in India include Ola, the troubled e-tailer Snapdeal, grocery delivery startup Grofers, and realty portal Housing, which was sold to rival PropTiger recently.

“SoftBank has put in a term sheet, a non-binding agreement between the company and the investor, but the terms are yet to be finalised.The amount they (SoftBank) want to put in will tantamount to heavy dilution for all shareholders and therefore it’s taking time,” a source cited earlier in the report said. SoftBank presently holds around 26% stake in Oyo and its shareholding would top 50% if the deal goes through in the proposed form .

Oyo Rooms founder and CEO Ritesh Agarwal said, “SoftBank has been a valued partner as we continue on our path to transform the hospitality space in India. We will also continue to explore other salient markets for further expan sion. Our efforts are complemented by our investors’ conviction in our mission and our team. We do not wish to comment on funding and future investments at this stage.”

A SoftBank spokesperson said, “We do not comment on speculation. SoftBank is deeply committed to its portfolio companies in India and elsewhere and actively helps them to grow their business.”

The fresh capital from SoftBank is largely going to be ploughed into Oyo’s new offering, Townhouse (earlier called Flagship), which currently has 70 operational properties in the mid-market space.Townhouse leases properties and services them for better quality experience in a move to fix quality issues, which emerged as a big concern for the hotel aggregator after it scaled up its inventory indiscriminately over the past two years while fighting competitors. Going forward, Oyo plans to push Townhouse more aggaresively.

For now, Oyo’s main business is aggregating budget hotels, where it claims to have 7,000 properties on its platform across 200 cities. Almost 90% of its revenues come from this platform where hotel owners pay a commission to it.

SoftBank’s bet on Oyo could be on the larger travel and hospitality industry , which saw the mega merger of MakeMyTrip and GoIbibo last year with the backing of South Africa’s Naspers. Globally , too, this segment has seen heightened action with China’s online travel firm Ctrip buying out travel search website UK’s Skyscanner for $1.7 billion. Oyo’s previous fund-raise of $60 million, which was completed in August 2016, saw its valuation remain flat at around $400 million, pre-money .

Besides SoftBank, its other investors include Sequoia Capital and Lightspeed Venture Partners. Having begun life as Oravel Stays -an Airbnb clone -in 2012, Oyo in all has snagged $180 million in risk capital. Budget hotel aggregating startups piqued the interest of investors in 2015 with players like Zo Rooms raising capital from heavyweights such as Tiger Global.

“SoftBank has put in a term sheet, a non-binding agreement between the company and the investor, but the terms are yet to be finalised.The amount they (SoftBank) want to put in will tantamo unt to heavy dilution for all shareholders and therefore it’s taking time,” a source cited earlier in the report said.SoftBank holds around 26% stake in Oyo and its shareholding would top 50% if the deal goes through.

Oyo Rooms founder and CEO Ritesh Agarwal said, “SoftBank has been a valued partner as we continue on our path to transform the hospitality space in India. We will also continue to explore other salient markets for further expan sion. Our efforts are complemented by our investors’ conviction in our mission and our team. We do not wish to comment on funding and future investments at this stage.”

A SoftBank spokesperson said, “We do not comment on speculation. SoftBank is deeply committed to its portfolio companies in India and elsewhere and actively helps them to grow their business.”

SoftBank’s bet on Oyo could be on the larger travel and hospitality industry in India, which saw the mega merger of MakeMyTrip and GoIbibo last year with the backing of South Africa’s Naspers. Globally , too, this segment has seen heightened action with China’s online travel firm Ctrip buying out travel search website UK’s Skyscanner for $1.7 billion. Oyo’s previous fund-raise of $60 million, which was completed in August 2016, saw its valuation remain flat at around $400 million, pre-money .

The fresh capital from SoftBank is largely going to be ploughed into Oyo’s new offering, Townhouse (earlier called Flagship), which currently has 70 operational properties in the mid-market space.Townhouse leases properties and services them for better quality experience in a move to fix quality issues, which emerged as a big concern for the hotel aggregator after it scaled up its inventory indiscriminately over the past two years while fighting competitors. Going forward, Oyo plans to put the pedal to the metal on Townhouse.

For now, Oyo’s main business is aggregating budget hotels, where it claims to have 7,000 properties on its platform across 200 cities. Almost 90% of its revenues come from this platform where hotel owners pay a commission to it. Besides SoftBank, its other investors include Sequoia Capital and Lightspeed Venture Partners. Having begun life as Oravel Stays -an Airbnb clone -in 2012, Oyo in all has snagged $180 million in risk capital. Budget hotel aggregating startups piqued the interest of investors in 2015 with players like Zo Rooms raising capital from heavyweights such as Tiger Global.

Source: Times of India