It is very rare that a venture capital investment reaps a multifold return for its investment in a startup. And this as most startups either get lost in their early-stage or fail to achieve the desired scale in the face of stiff competition and funding crunch.
But in this frenzy, few bets do succeed, which gets a VC a handsome return on its investment (RoI) in a couple of years. Tiger Global’s exit from Flipkart is a prime example where it made three times of its investment in Flipkart.
And in some cases, returns could be manifold – over 10X or 20X.
Lightspeed Venture Partners’ and Sequoia Capital India’s partial exit from OYO is case in point. Both the VCs have completed the secondary transaction selling 15% stake in OYO Hotels & Homes to founder Ritesh Agarwal for $1.5 billion.
Lightspeed, which according to an ET report put in $28 million in OYO, is making over 35X returns whereas Sequoia, which made $25 million, will garner over a 20X return on its investment.
Post the transaction, both the VCs will continue to hold 4-5% stake in OYO.
OYO’s founder and CEO Ritesh Agarwal confirmed the development though the company did not share any details of the transactions.
In September, Agarwal’s $1.5 billion stock buyback plan had got a green signal from the Competition Commission of India (CCI).
The transaction, through freshly formed Cayman-based RA Hospitality Holdings, would take the valuation of OYO to $10 billion and Agarwal’s current 9% stake would increase to over 30%. SoftBank will have close to 50% stake in the hotel chain.
Three Japan-based banks – Nomura, Mizuho, and one unidentified bank, are funding Ritesh Agarwal’s $2 billion loans.
The repayment is expected in three years when OYO plans to hit IPO. The hotel chain expects its valuation to go up to $18 billion by then. This would take Agarwal’s stake to $4.8 billion, through which he plans to repay the loan with interest.