Lightspeed Venture Partners and Sequoia Capital are poised to rake in the richest ever cash out in the country’s startup ecosystem so far when they sell part of their stake in Oyo Hotels & Homes to company chief executive Ritesh Agarwal.
Agarwal has announced a $1.5-billion share buyback, a part of which will come from the two Indian venture capital firms.
Lightspeed, which manages capital of about $310 million across its two country-specific funds in Asia’s third-largest economy, is set to earn an estimated $1 billion from the sale of half of its current 13.4% stake in Oyo, a company it had first invested in 2014. In all, Lightspeed has invested about $20 million into the six-year-old company, thereby earning 50X returns on its five-year-old investment.
The firm, along with consumer-focused investment firm DSG Consumer Partners, had first written a cheque for about $600,000 in 2014, which also had a secondary component, picking up a 26% stake in the then-year-old venture.
Sequoia Capital, which manages assets of about $3.9 billion in the country, and holds a 10.24% stake in Oyo, will take in about $500 million from the partial stake sale, having put in about $27 million into the company across rounds. It also first partnered with the SoftBank-backed hospitality chain in 2014.
Given that these stake sales are partial, Sequoia and Lightspeed will still own over 5.5% and 6.5% respectively in Oyo, which is being valued at $10 billion, and are likely to participate in its upcoming capital raising rounds.
“This is pathbreaking, and is also unique in several aspects for the ecosystem, along with massive value building,” said Krishnan Ganesh, promoter of entrepreneurship platform GrowthStory. “After Flipkart and Paytm, this is now the most valued company in the country. It also proves that you can build India-unique models here and take it to the world. Agarwal’s move has answered a lot of questions now.”
The massive paydays for the two VCs, once the transaction receives the necessary regulatory clearances, will put in shade the $3 billion estimated to have been earned by New York-based Tiger Global Management post the sale of Flipkart, India’s largest online retailer, to Walmart last year.
Tiger Global had put in about $1 billion in Flipkart and its returns from the transaction when Walmart bought the e-commerce firm for $16 billion last year was considered the gold standard of venture capital exits in India.
Agarwal’s estimated $2.2 billion transaction will see the Oyo founder raise his stake in the hospitality chain about threefold to around 30%. Agarwal, along with the management, will emerge as the second-largest shareholder after SoftBank Vision Fund, which owns almost 48% of the company.
The investment is being made through Cayman Islands-registered special purpose vehicle RA Hospitality Holdings.
“Only founders have the long-term horizon to build institutions,” said Anand Lunia, managing partner of early-stage investment firm India Quotient. “We need companies to go to IPOs. And for that founders need higher equity and control. This is a very elegant way of giving control to the founder. While Ritesh is the star here, let’s not miss the role of the VCs here who have supported such a transaction.”
Overall, exits continue to be a relatively rare phenomenon in the country’s startup ecosystem. According to a report co-authored by Bain & Co and the India Venture Capital Association last year, till September 2018, VC investors had recorded exits of $19.6 billion, compared to $4.2 billion in the year-ago period. However, this is skewed by Walmart’s $16 billion acquisition of Flipkart.