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After A Burst Of Expansion, OYO Struggles To Reach Even A Quarter Of Its Investment Requirement

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Investments continue to get hard to come by, specially for India’s biggest names in the startup ecosystem. Hotel room aggregator Oyo rooms has received a reality check as well, that has it struggling to reach even a quarter of its initial $400 million investment goal.

There company has thus brought down its requirements, and is now hoping to raise at least a quarter of its initial goal, mainly from its chief backer Softbank. Accroding to what sources inside the company have told Economic Times,

They (OYO) have tested the market and no one is biting, (Softbank) has stepped up and is likely to invest $50-80 million in the company

Needless to say, the development has also put paid to its hopes of a $600 million valuation.

The inability to raise the sum it set its sight upon, comes at a very crucial juncture. Oyo is bang in the middle of acquiring rival Zo rooms in a stock transfer deal that was expected to cost it about 7 percent equity. However, a section of shareholders had been creating problems for the deal and Oyo’s inability to reach the $400 million mark — or anywhere near it — is likely to strengthen their hand.

Despite the fact that it was announced almost a month ago and that the handover of business and workforce has already been done from Tiger Global backed ZO, Oyo has still not signed the official papers to close the deal.

Both Zo and OYO spokesperson have declined to comment upon the current status of the deal.

The fundraising difficulties are not particular to Oyo. The market is slowing and investors are not as keen to spend money as they were a while ago — Morgan Stanley’s 27 percent markdown in Flipkart, for example. Investors are none too happy about companies that are using their cash to go upon a discounting spree, either.

However, what makes things even harder for Oyo, is the fact that rivals makemytrip and ibibo — both of which are planning to move into room aggregation next — have raised significant amounts of cash.

Oyo is hunting for other investors too, but hasn’t had any luck so far and Softbank remains its chief backer.

Meanwhile, the company, which boosted its presence from just 3 cities at the beginning of 2015 to 165 at the year end, has received a definite check on its speed. The company, which currently operates 45,000 rooms in over 4,000 properties in 165 cities, may want to consider turning its business self sustainable and profitable, before thinking about further expansion.

Oyo’s case though, is once again a reminder of the fact that investors have now become increasingly vary of a company’s revenue potentials and its growth. And while startups in India were made flush with cash last year, the same cash has now dried up due to over-sized burn rates and not so good revenue earning credentials.

A bibliophile and a business enthusiast.

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