Mid-way through 2019, hospitality startup OYO’s founder, Ritesh Agarwal, and Masayoshi Son, the head of its biggest backer, SoftBank, played out an elaborate game of startup kayfabe startup kayfabe The Ken OYO and the art of startup kayfabe Read more . The duo orchestrated a $1.5 billion investment round for the Gurugram-based company, which purports to be purports to be Business Standard OYO says it is world's third-largest hotel chain by room count Read more the world’s third-largest hospitality chain.

Masa would put in half the money, with the other half coming from Agarwal himself. The funding would see OYO’s valuation jump to $10 billion.

But there was a snag. While the SoftBank CEO was able to pony up his share, Agarwal didn’t have the cash to match it. Instead, Agarwal borrowed $2 billion from a consortium of Japanese banks to fund his investment, with the loan personally guaranteed by Masa.

Despite the faint stench of self-dealing and corporate misgovernance, this deal could have been a win-win for Agarwal and Masa. The former got a larger stake in his startup and a much bigger treasure chest to fund its ambitions; the latter got a neat markup for SoftBank’s previous investment in OYO, which it could parlay into its quarterly results as profits.

Of course, Agarwal would need to clear this loan at some point. But as long as OYO continued growing, it would just be a matter of time for the company to go public or get acquired and deliver liquidity.

Unfortunately for Agarwal, that plan didn’t quite follow the intended script.

Cue the Covid-19 pandemic that has brought the world to its knees over the last few months. While the virus has hurt practically every industry in the world to some extent, there is little doubt that it has hit the travel and hospitality industry like a Category-5 storm. It has completely wiped out business overnight with a grim prognosis on when things will possibly return to normalcy.

There is a silver lining for OYO. The SoftBank-Ritesh $1.5 billion round means it’s well-capitalised at the moment.

OYO can leverage its treasure chest as a moat to attract and retain desperate hotel partners, who are far more likely to accept any terms it offers as long as it helps them stay afloat. Direct competitors like Treebo and FabHotels, which only have a fraction of OYO’s capital in their respective kitties, will struggle to survive this winter.

Unfortunately for OYO, surviving an existential threat for the next 12-18 months is not going to be enough. Specifically, it is not going to be enough for Agarwal, its wunderkind founder and CEO.


Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

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