SoftBank might push OYO’s early investors Sequoia Capital, Lightspeed India to exit to increase shareholding

By: |
July 8, 2019 8:08 PM

SoftBank might be seeking OYO's top investors -- Sequoia Capital and Lightspeed India Partners' exit from the company to enhance its stake in from current around 48 per cent stake.

OYO’s Articles of Association (AoA) prohibits Japanese telco giant — Softbank from acquiring over 49.99 per cent of its fully diluted share capital. (Image: Bloomberg)

Popular hotel and home chain OYO’s biggest backer SoftBank, which continues to be bullish on investing in it — one of the world’s largest hotel companies, might be seeking OYO’s top investors including Sequoia Capital and Lightspeed India Partners’ exit from the company to enhance its shareholding from current around 48 per cent, a source with knowledge of the matter told Financial Express Online.

“OYO’s capitalization table has seen a significant cleanup in recent years with most of the early investors having exited. The new move will likely complete the cleanup before SoftBank plans fresh infusions of capital to fuel OYO’s move to go global,” the source said.

SoftBank, however, is currently restricted to increase its shareholding from more than 49.99 per cent as per the negotiated shareholder agreement arrived at during OYO’s Series D round of funding from SoftBank. OYO had $250 million Series D round led by SoftBank in September 2017. 

The company’s Articles of Association (AoA) prohibits Japanese telco giant — Softbank from acquiring over 49.99 per cent of its fully diluted share capital directly or indirectly without seeking consent from other top shareholders — Lightspeed, Sequoia Capital, founder Ritesh Agarwal, and California-based Greenoaks Capital, as per the AoA sourced from business signals platform

Hence, for SoftBank to enhance its stake by acquiring stakes of Lightspeed and Sequoia Capital, it would seek Agarwal’s consent.

“SoftBank is eager to back OYO again and has been bullish on its growth. Hence, it will likely push for a complete exit by the other key investors that will provide SoftBank with a majority status in OYO. However, once this happens and the agreement is renegotiated it will require Ritesh’s consent,” Vivek Durai, founder, told Financial Express Online in a note.

However, the two funds might go ahead with a partial exit, another source aware of OYO’s plan told Financial Express Online.

While SoftBank will be pushing for a full exit by Sequoia and Lightspeed, the two funds “might favour a partial exit from the company as there has been no follow-on capital invested by them since 2017,” Durai also echoed.

Greenoaks, on the other hand, might no longer have the say during the event of fundraising as “its holding dipped below 6 per cent,” Durai added.

Also read: OYO finds new investor to raise another $1 billion, valuation to hit $10 billion

OYO’s shareholding pattern included SoftBank with 45.69 per cent share after Series D round along with 13.4 per cent owned by Lightspeed, 10.24 per cent controlled by Sequoia Capital, Ritesh Agarwal having 9.43 per cent stake followed by Greenoaks that had 5.76 per cent share in the company.

“The acquisition (of investors’ stakes) will be by SoftBank with Ritesh probably buying a portion,” the first source added.

“As a company policy, we don’t comment on speculations. We have no further comments,” OYO said in an email response to the query to Financial Express Online.

“Regret that we don’t comment on our plans with respect to any portfolio companies,” Bejul Somaia, managing director, Lightspeed India Partners told Financial Express Online.

Comments from Sequoia and Greenoak will be updated as and when received.

The development comes amid OYO looking to raise another $1 billion from a new investor to lead the round along with existing investors including SoftBank, Grab, DiDi Chuxing, Sequoia, Airbnb and others, that is likely to value OYO at a whopping $10 billion.

The new valuation would bring OYO at par with Paytm’s $10 billion valuation, ahead of Ola’s $6.2 billion and Byju’s over $5 billion. OYO is currently valued at $5 billion.

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