There’s little doubt that the company can afford to pay these vendors back—aside from the aforementioned regional investment pledges, OYO is in talks to raise $1.5 billion, which would take its total funds raised past $3 billion.
With its expansion in the region hitting hurdles, OYO announced in August that Mandar Vaidya, a 15-year veteran of McKinsey, would head its Southeast Asia and Middle East operations. The firm is keen to dismiss any suggestion that there could be a repeat of China, where OYO is reported to have made layoffs due to “unethical practices” despite initial claims of rapid success. OYO has denied the allegations of layoffs in China.
While OYO’s issues in the region are cause for hope for RedDoorz, investors are still treading with caution. “We thought they were the best performing in that sector, particularly in terms of reducing dependence on OTAs (online travel agencies) for customers. But there was still a lot of noise and competition in the region, most notably from OYO,” a prominent investor who passed on investing in RedDoorz told us on condition of anonymity.
According to one VC professional, uncertainty around the viability of RedDoorz business model put their firm off a potential deal. Despite that, the person said that RedDoorz now “has a good window of opportunity” given OYO’s broad focus on global markets.
But there’s also a wider concern around the more fundamentals elements of the business.
By the wayside
Tinggal, a rival in Indonesia that previously raised $1 million from one-time OYO India competitor Wudstay, is no longer around. Nida Rooms is another that was forced to make cutbacks after struggling with financial problems. Founded by ex-SpiceJet executive Kaneswaran Avili, it downed shutters despite raising some $12.2 million, according to data from company tracker Crunchbase. (Image via Mike Rasching/Unsplash)
“By combining single hotels under one brand and using one technology stack, the budget hotel network definitely creates synergies of scale. These are hotels that would no way have mobile solution or new types of POS individually,” said Bart Bellers, CEO of Singapore-based travel, tourism and hospitality fund Xpdite Capital Partners.
“But basically they are building their own hotel, and ultimately they are stuck with long term leases. What if there is a downturn in the tourism industry? That’s a big big risk.
“Sometimes it has me wondering if this has similar high risks as the WeWork model,” Bellers said in an interview. “Scalable? Yes. Sustainable? To be seen.”
An IPO for RedDoorz
Those concerns didn’t weigh down Asia Partners, a new growth stage fund that announced a $70 million first close of its maiden fund in June. The firm led the RedDoorz Series C deal in what was the first public investment for its fund, which is believed to be targeting a final close of up to $300 million.
Growth funds are a new trend in Southeast Asia venture capital, and this new kid on the block has serious credibility. Asia Partners is founded by ex-Sea President Nick Nash, the man widely credited for taking the Singapore-based gaming and e-commerce company public in 2017, and Oliver Rippel, whose past includes leading Nasper’s business-to-consumer and online services businesses.