Oyo Is Successful Because Of Its Business Model, Says CEO Ritesh Agarwal

Ritesh Agarwal, founder and chief executive of Oyo Rooms, one of the country’s most popular unicorns—or rather decacorns (startups with $10 billion in private market valuation)—insists the credit for the success of his startup should go to the business model and not the quantum of capital raised.

In an interview, the 25-year-old talks about issues ranging from promoter buyback to his most powerful backer, SoftBank’s chairperson Masayoshi Son. Edited excerpts:

Your attempt to consolidate your ownership through buyback of shares from some private equities is unprecedented in the Indian startup ecosystem. How did this idea originate, and how did investors react?

We believe that as long as companies are investing to build a business that is sustainable, and investing in long-term future with a clear path of operating efficiency, value is there to be created. On a year-on-year basis, we are operating each of our buildings profitably, and our Ebitda (earnings before interest, taxes, depreciation and amortization) is improving by 50%. Even though we are a private firm, we issue annual reports online. For the last three years, we have been cutting our losses by 50%.

I started Oyo right out of my high school, with limited resources. I raised my first round of capital divesting double-digit ownership, while raising $40,000. Ever since, I have been thinking whether there is a way to double down on my belief in a company which is such an important part of my life. So, with that perspective, in the last few months I have been thinking about the transaction seriously. We have signed the binding documents. The first time I brought this up with investors, people thought I am not serious. I explained to them the rationale, and that it will help me feel more comfortable about the conviction I am demonstrating in the company. Although investors wanted to stay on board for longer, both Lightspeed and Sequoia showed faith and willingness to support my decision.

Do you share a deep relationship with Masayoshi Son?

Masayoshi Son is one of the most innovative and impactful thinkers and problem-solvers of our generation. I am truly inspired by him, right from the time we raised funds for the first time. He has backed some amazing companies in our generation. I feel he spends time with all the portfolio companies each quarter, and he spends time with Oyo as a part of that. The inputs we receive from him will be transformative for our business in the years to come. I will share one example. During a meeting with Son, I mentioned I will launch in China, many years later once we have enough resources out of India. Son agreed that the plan made sense, and asked how much capital we have on our balance sheet. At that time, we already had $150-200 million. So he said, “You have this capital on balance sheet and you want to launch in China—you could take $50 million out of this and try to see if you could make a difference in China.” We came back, discussed and decided to follow Son’s advice, it turned out to be a great piece of foresight. The ability to take calculated risk is something SoftBank is special in. Through this experience we have learned to weigh risk versus regret in our decisions because opportunity comes once in a lifetime.

SoftBank has been your biggest backer till date putting in close to $1.4 billion. Critics say that the manner in which Oyo is growing, your biggest advantage is capital.

It is a common misperception. Companies that raise capital do it on the basis of past performance and unique competencies of the business. We cannot raise capital if we are not creating sustained value. The credit of Oyo’s impact should be given to the 20,000 Oyopreneurs on the ground. We have been through many phases, but we got our house in order, improved our performance, and in the last three years we have been growing fast.

Our core competency is three-fold: We are able to decide on acquiring real estate in real time—much quicker than others, share an offer with asset owners quickly; we renovate our assets quickly using data science, for example, we know what interior design gives us best increase in revenue; and we operate our assets efficiently, leveraging 14 Oyo institutes in India—90% of our revenue is repeat business or through word of mouth.

When do you see yourself becoming profitable?

At building levels, we have been able to make margins, and those margins will improve as operating efficiency increases and lead to profitability.

But do we have a guidance by when we will be profitable? We don’t really. But as a company, we believe, to the extent we are able to bring in assets, provide good quality service and make sure there is occupancy, we will eventually be profitable.

The article was first reported on Livemint.com