Having already raised around $1 billion in equity funding, India’s leading hospitality startup OYO Rooms is now turning to venture debt funding route to induct funds into the company. OYO is betting big on its vertical Townhouse which is a model where the company owns and manages the properties and OYO wants to expand this vertical. The debt funds now being sourced will be deployed in this vertical only, it is learnt. As already reported, the huge fund infusion undertaken recently was aimed at expanding the overseas operations, mainly China, where OYO has made massive inroads in the hospitality sector. There are 10 countries in which OYO is operating right now.
Though there is no definite figure being revealed at this moment, sources reporting this development feel it could run into several crores.
The trend to use the debt funding route among startups, in the Indian context, is catching up. There are many other companies that have used this financing process. Swiggy, Byju’s and BigBasket are being cited as examples. It is not that these companies have not raised through selling equity. But in the medium to long term, equity funding could be expensive compared to debt funding. In addition, the investors in equity start interfering in the day-to-day management of the company leaving the promoters in a kind of fix. But debt funding may not be available to all startups across the spectrum. Experts point out that if the startup is able to demonstrate the acquisition of some tangible asset that may add value later, then the debt-fund raising effort is made easier.
In OYO’s case, the Townhouse vertical involves buying up properties and since these properties are then used to raise revenues and the inherent asset value also can appreciate, this becomes the preferred way to bring in capital.
It is learnt that OYO Rooms is in talks with multiple financial institutions like NBFCs which specialise in debt instruments.