The demise of WeWork has thrust another fast-growing company backed by SoftBank into the spotlight: Oyo Rooms.
The budget hotel budget chain announced Thursday it is appointing Betsy Atkins, CEO and founder of Baja Corp., as independent director on its board.
It’s a sign that Oyo is trying to improve its governance and diversify its board amid concerns over SoftBank increasing it stake in the company.
Founded in 2013 by Ritesh Agarwal at age 19 in India, Oyo has quickly grown across 80 markets and is scaling its business in the U.S. with recently converted properties in Dallas and Las Vegas.
“As we continue to grow and to deepen our relationships with asset owners and consumers around the world, we are fortunate to have someone of Betsy’s caliber on our board of director,” said Agarwal. The leadership announcement comes as Oyo’s aggressive growth strategy under the guidance of early investor Masayoshi Son of Softbank, has raised eyebrows.
Atkins, who has built three early-stage funds, will play a supervisory role and provide guidance to the 26-year old founder, says the company.
Other Oyo board members include Munish Varma, managing partner of the SoftBank Vision Fund, Bejul Somaia at Lightspeed India Partners Advisors, and Mohit Bhatnagar, managing director at Sequoia.
Oyo’s latest fundraising round doubled the company valuation to $10 billion and tripled Agarwal’s ownership to 30%, inviting speculation from investors.
Agarwal’s ambition, with the help of Son, allowed the entrepreneur to secure a $2 billion loan from a consortium of Japanese banks, say two sources close to the matter. Those funds were then used to buy back stock from Sequoia Capital and Lightspeed Ventures
“Look, I’ve always wanted to try and increase my ownership in the business,” Agarwal said. “When the company was really small, I could not convince enough financial institutions, banks, to be able to support us. I think at this point of time, Oyo was in a sweet spot that we had some businesses that we’re doing very well in terms of economics and at the same time, the company was growing very quickly.”
Following the deal, Agarwal’s stake via his holding company RA Hospitality increased from 10% to 30%. At the same time, SoftBank’s stake reportedly increased to nearly 48%. The optics of the fundraising round, while impressive on paper, coincided with WeWork’s botched IPO and criticism of founder Adam Neumann’s management style.
Agarwal told CNBC he remains focused on expansion in the U.S. and winning over American hotel owners.
“Here in the U.S., what we saw early when we came here during March of this year is for a long time, middle-class Americans traveling across cities on highways, in business cities, or leisure cities, we felt they deserve better. They deserve better products for lower prices and our proposal to our underlying asset owners is we will come in, invest the capital to make mid-market and economy hotels exciting,” Agarwal told CNBC in an exclusive interview from the Phocuswright conference in Hollywood, Florida.
However Oyo’s model has not come without its flaws.
A New York Times story published on Nov. 12 titled “The SoftBank Effect,” interviewed a hotel owner in India who said he had not seen the benefits of the Oyo model. Instead, he’s facing financial troubles.
Agarwal responded to those concerns.
“I think generally if you see some of those responses, first off, Oyo’s evolved significantly, there will also be a certain set of assets that will have a challenge and our responsibility as a company is to make sure we work with them and deliver the best results.”
Agarwal also mentioned “technological” as well as “process improvement challenges.”