Indian budget hotel chain Oyo may have lost a significant portion of its business to the pandemic, but it is inching closer to finding a new investor: Microsoft.
Microsoft is in advanced stages of talks to invest in Oyo, valuing the Indian startup at about $9 billion, according to people with knowledge of the matter. The proposed size of the investment is unclear. A deal may close as soon as Friday, one source said.
The proposed deal may also involve Oyo shifting to use Microsoft’s cloud services, one of the people said, who like everyone else requested anonymity discussing private matters.
Microsoft and Oyo founder and chief executive Ritesh Agarwal declined to comment Thursday evening.
Oyo, which is one of India’s most valuable startups, has aggressively expanded to many markets including Southeast Asia, Europe and the U.S. in recent years. But some of its missteps — “toxic culture,” lapse in governance, and relationship with many hotel owners — have scarred its growth.
Just as the startup was pledging to improve its relationship with hotel owners, the pandemic arrived. In response, Oyo slowed its growth and laid off thousands of employees globally earlier this year as nations across the world enforced lockdowns.
The pandemic hit the seven-year-old startup like a “cyclone,” Agarwal told Bloomberg TV earlier this month. “We built something for so many years and it took just 30 days for it drop by over 60%,” he said, adding that the firm had not made any decision on exploring the public markets.
Airbnb-backed Oyo had between $780 million to $800 million in its bank, Agarwal said at a virtual conference recently and had pared its “monthly burn” across all businesses to $4 million to $5 million. (The startup had about $1 billion in the bank in December 2020.)
Earlier this month — after Agarwal’s remarks at the aforementioned conference — Oyo said it had raised $660 million in debt. That debt was used to pay off the previous debt, another person familiar with the matter told TechCrunch.
In a filing on Wednesday, Oyo disclosed that the term of the debt includes the option to exchange equity at a later date.
If the deal between the two firms materializes, it will be Microsoft’s latest investment in an Indian startup. The firm has backed a handful of startups in the South Asian market, including news aggregator and short-video platform DailyHunt, e-commerce giant Flipkart, and logistics SaaS firm FarEye.