An old clause introduced in the Articles of Association of hospitality startup OYO Rooms two years earlier has to come to light now. According to this, the major investor and stakeholder in the company, SoftBank of Japan, cannot increase its holding beyond 50% without the consent of the promoters and other investors.
SoftBank owns 46% stake in OYO and there are other investors in the startup many of whom have backed the venture from early days; these include LightSpeed Venture Partners and Sequoia Capital India. These two together would be holding another around 25% with the rest being held by the founder Ritesh Agarwal and other minor investors. The threat being perceived by the founder and to some extent some of the early investors is that SoftBank can acquire shares from any other investor and increase its shareholding to over 50%. Some Indian startups have found such VCs dictating terms and wanting to get involved in the day-to-day operations.
The rider has been introduced like this; “SoftBank Standstill Obligation” is the name given to this clause and it says SoftBank should restrict its shareholding in the company to 49.99%. And in case it wants to increase shareholding beyond the limit, it needs the permission of Agarwal and “Requisite Investors”, meaning Sequoia, Lightspeed, and Greenoaks Capital. This is because these are the ones with some substantial holding to feel threatened or being sidelined by a strong investor.
None of the entities involved have officially commented on this development.
In the context of Indian startups, a similar situation has been witnessed in another company, Ola, where SoftBank again was in the centre of an amendment being made in the company’s constitution limiting them from increasing their stake beyond a point.
Incidentally, OYO has reached a valuation of $10 billion and is keen to source funds, but it will have to look for a new investor.