The long speculated deal of Oyo Rooms acquiring Zo Rooms has finally materialized. SoftBank, which took part in a $100 million round of funding in Oyo Rooms last year, announced the acquisition without specifying the deal value.
While Zo Room’s founders will get close to a 2.5% stake, the rest will be held by Tiger Global Management LLC, Orios Venture Partners, angel investor Zishaan Hayath and Mato Peric, ex-managing director at Rocket Internet, among others.
The acquisition will help Oyo which is valued at around $350 million, to leverage Zo’s technology and a network of 11,000 rooms in 1,000 hotels across more than 50 cities and towns in India. Further, the deal will also allow Oyo to pick what it wants and leave the rest. For example, Zo Rooms had close to 300 employees and 20,000 listed properties across 30 cities. But not all will be absorbed by Oyo.
The case is a stark example of the fate of startups which base themselves on high-cash burning models rather than sustainable ones. Similarly, the increasing tendency of aping the first mover’s business model with little or no innovation is yet another factor which is deterring startups from flourishing. Investors these days have become very conscious about tangible growth. Unless one is a market leader in its respective sector, raising fresh funds has become a very tough nut to crack. Zo which had raised roughly $45 million from Tiger Global and Orios Management in 2015, failed to convince investors to infuse more capital. Hence, compelled to give in.
Moreover, this case is also reflective of the growing business consolidations- a phenomenon has been observed quite evidently in the Indian startup ecosystem, of late. Adding a comment on this, Rohit Bhatiani, director, Deloitte Touche Tohmatsu India LLP, said, “This was a much needed consolidation in the hyper competitive space of budget hotel accommodation. But the bigger challenge will be to see how the company is going to set up a proper mechanism to provide consistency of service and the whole diligence process of getting properties on board.”