OYO turns to venture debt for doubling down on Townhouse

After raising over a billion dollar, launching multiple verticals and products in real estate, and expanding operations in numerous countries, OYO Rooms is now looking to raise more money to strengthen a few verticals.

This time, however, the funding this Ritesh Agarwal led firm is looking to score is in the form of venture debt. There is no doubt about the fact that the cost of raising equity is high, both financially and in the form of division in control. Debt, however, is cost effective as it saves on taxes and also leads to no dilution in control.

Keeping this mind, the company has been talking to several top-notch private banks and venture debt firms to raise hundreds of crores of rupees. Large startups generally turn to venture debt for one specific action like acquisitions or brand marketing, which adds to the assets, as per Mint's sources.

For OYO, the purpose is to strengthen its luxury product Townhouse. Launched in January 2017, Townhouse was OYO’s offerings for customers, especially corporate users, who are ready to pay a higher price for better facilities and accommodations. Right now, it has 88 of these properties in India, and the number is bound to increase.

The product is live in several other countries apart from India as well, and now the company wants to double down the operations in this area and invest more money in it. The $1 billion equity funding will be going for international expansion, while the venture debt the company will now raise will be used to buy new properties for Townhouse.

OYO realised that while the budget hotel chain achieves scale, the luxury chain redeems its market image.

The strengthening of Townhouse and the launch of a new product named Connection O that focuses on quality accommodations with improved infrastructure, showcase the OYO’s shift in focus from budget to luxury. Connection O itself has 12 hotels that are expected to increase to 650 by the end of the calendar year.