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Last week, a long and bitter legal battle between two Indian startups finally reached a denouement of sorts. In 2015, budget hospitality startup OYO Rooms, one of India’s highest-valued startups today, was said to have acquired acquired VC Circle OYO buys Zostel in all-stock deal Read more its closest competitor, ZO Rooms (also known as Zostel). It was reportedly an all-stock transaction, with OYO offering a 7% stake in the combined entity.

Except, the deal never happened. Instead, a lengthy court battle followed.

On 6 March 2021, a Supreme Court-appointed adjudicator finally pronounced a judgement. Predictably, both parties claimed claimed Financial Express OYO vs Zo – Zostel claims victory while the Ritesh Agarwal-led firm says there’s still room to win Read more victory and vindication.

“We are extremely relieved with the judgement that the arbitral tribunal has pronounced after diligently evaluating the merits and evidence produced by us over the last three years,” said a ZO statement adding that if the order comes into effect, it would be “the biggest exit in the Indian startup ecosystem”, surpassing the $400 million Snapdeal-Freecharge deal in 2015.

On the other hand, OYO’s statement averred that the arbitrator had not given any direction for the issuance of shares. The definitive agreement was neither agreed upon nor consummated and, therefore, closing conditions were far from being achieved.

So, who won?

More importantly, what’s the real story behind this long and ugly fracas? Why and how did things pan out this way? And what happens now?

How it started

In 2015, OYO Rooms was an up-and-coming startup. Despite questions questions The Ken Chandni Chowk to China: Can OYO go from Ponzi to profit? Read more about its business model, the company was blazing a trail on the back of millions of dollars in funding.

While OYO might well have been a pioneer in the online budget hotel space, it was far from being the only startup in the domain. There were other players like Treebo Hotels, FabHotels, and ZO Rooms, all backed by marquee venture capital firms across the firmament. Of these, ZO Rooms was arguably OYO’s closest and most aggressive competitor. Backed by Tiger Global and Orios Venture Partners*, ZO seemed determined to outspend OYO in winning market share—by handing out minimum guarantees faster and deeper than OYO.

These minimum guarantees were payments that ZO would give to hotel owners irrespective of their revenue. Any revenue over and above the minimum guarantee figure was to be shared between the two parties.

AUTHOR

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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