A STUDY ON STARTUPS IN INDIA -ANALYZING THE STAGES OF INVESTMENT IN A STARTUP( OYO- A CASE STUDY)

AUTHOR-AKSHAT MISHRA

EDITOR- SHUVASMITA NANDA

ABSTRACT

This research examines the critical issues posed by emerging small-scale companies, also known as start-ups. In this research paper, the researcher has discussed the issues faced by Start-ups in raising capital. This study was conducted on the rising culture of entrepreneurship and its effects on society. Any start-up or company plan requires funding, and it is incredibly challenging for a start-up to present its ideas to shareholders and persuade them to invest in it.

This research explains the growth story of the most remarkable hotel industry in recent years, i.e., ОYО Hotels & Homes. ОYО has received significant funding from prominent investors, including the Japanese conglomerate Softbank Group and the American firm Airbnb. In India, this hotel chain now has over 1,70,000 rooms and claims to have seen а three times increase in transactions in the country year over year. Finally, The research is to understand the growth pattern of OYO in terms of its investment strategy and analyze the growing demand for affordable hotel services around the world.

1. Introduction

The appeal for "Make in India" from Prime Minister Narendra Modi has led to numerous transformations in India. While it is essential to concentrate on the industrial production trade export model for long-term economic progress, it is, however, the appropriate time to recognize the rise of a new class of businessmen who are demographically associated with a budding organization. Moreover, as increasing numbers of people reach a shared virtual marketplace via their phones, the entrepreneurs have started using the necessary possibilities.

The OYO rooms of Ritesh Aggarwal were among the first to recognize the possibility to resolve the issue of certainty and standardization by naming India's unbranded, approximate 88,000 crores budget hotel market. Aggarwal not only has earned himself strong recognition but has made significant investments in the hotel sector through the creative use of technology.

2. Objective:

This paper focuses on

1]Evaluating the various forms of financing available to start-ups.

2]Researching the government's stance toward promoting and financing new businesses.

3]Examine the reasons why start-ups struggle to manage their initial financing.

4]Research the changing developments in traditional employment to begin.

5] Studying about the start-up of OYO, how it has developed and invested.

3. Stages of Investing

Wherever you're in your start-up life, you must have money to keep your lights on and your team happy. It might not have been your dream to raise capital before the business was founded, but how far it goes will depend on your ability to do so. Understanding the various needs at any point of the financing would allow you to trust customers with a straightforward road to what you are all about. The following five stages provide a basis for starting a business.

3.1 Seed Capital

Seed funding is the initial source of investment. It includes sources such as banks of F&F (Friends and Family), crowdfunding's, credit cards, or your deposits, as well as networks reliant on you since childhood. Whomever you collect money from is not free, and interest in your start-up contribution should be explicitly specified. Aim to deliver and update concrete results on your success periodically. The goal of the money that you collect now is generally to investigate and grow the original product or a Minimum Viable Product, whether you have one.

If the funding sources described above aren't available, seed accelerators such as Y-Combinator, TechStars, and 500 Start-ups are potential options. Take the time to prepare, research, and validate your idea before approaching an investor for a higher likelihood of acceptance.

3.2 Angel Investor Funding

Angel Investors provide boosts to start-ups and either scale or increase capital to produce products, ads or merely extend the staff to hold it up. In this phase, the business model should be proved if your company is raising capital.

Accredited investors are entities with a net valuation of at least USD 1 million and an annual benefit of at least 200,000 (two hundred thousand) independently or three thousand following a partner, as described by the SEC. Angels vary from most investment companies, for instance, Venture Capital companies, because they use their own funds and can be treated for financing. One may either invest independently or pool the money together with a group.Since the money raised will be considerably more significant than in the seed round at this point, creditors also expect a sophisticated pitch.

3.3 Venture Capital

Venture Capital Financing may provide funding to expand the enterprise to new channels, client groups or enhance consumer growth marketing activities. At present, the start-up is either successful or will benefit from the negative cash flow rewards from this latest investment wave as the enterprise continues to expand. Several funding rounds can take place at this point, and investors may also provide additional experience and membership in the association.

Wait for due diligence from the future partners and be willing to answer all manner of queries and questions. Learn about the different deals currently available, such as bonds, Secure (Simple Future Equity Accord), and convertible notes. Given that VC invests the capital of others, its duty is to invest soundly in companies that would probably deliver significant ROIs for their customers. VCs routinely veterinary start-ups, so be committed and trained as you pitch to them.

Venture

Venture capital investment enters the scene after the company's final goods, or services hit the market. Irrespective of the viability of the goods, every company considers using this point, which entails multiple rounds of funding:

Series A

Series A investment is the first round of financing; it would not require outside funding. Start-ups have developed a clear strategy for their product or service at this stage. It is mainly used for promotion and brand credibility and tapping new audiences, and assisting with business growth.

Series B

When a company depends on Series B funding, it shows that the product is well sold and consumers are using the product or service as planned. In addition, such financing enables a company to pay wages, hire more employees, improve technology, and position itself as a global competitor.

Series C

A start-up will earn as many rounds of funding as it wants; there are no limitations. However, when it comes to Series C investment, both the owners and the buyers are cautious about financing this round. The more funding rounds there are, the more equity will be released in the firm.

How does Venture Capital financing work?

Different VC rounds or sequences, such as A, B, or C, represent different business valuations and positions.A business that is doing well, for example, falls into Series B, and any that fell into Series C would have a higher stock price than their prior assessment.One has to keep in mind that if a company is not doing well, it can still get funding in subsequent series or stages, but their value will be smaller than in the previous round, and they will be in a "down round."

Each round can also include 'strategic participants,' or investors who join in the round but have value in exchange for capital, such as marketing or technological assistance.Money is usually exchanged for preferred stock in each round or series (as opposed to the common stock that seed capital sources or angel investors receive).Though angel investor support has increased in recent years (nearly 23% of funding comes from angel investors), start-ups still rely on venture capitalists for the majority of their funding, according to data gathered by Oyster connect. Series A venture capitalists supply almost 28% of contributions, while Series B venture capitalists provide 18%.

3.4 Mezzanine Financing & Bridge Loans

Mezzanine Finance is a sort of debt-equity funding that enables the investor to convert its interest to the company's shareholding in case of failure, usually after venture capital firms and other senior lenders have been paying.

Bridge loans are short-term loans that last up to a year, have high interest rates, and are often backed by some collateral such as real estate or inventory. Bridge lending or a bridging loan are terms used to describe certain kinds of loans.

As of this point, you begin off with a commercially viable commodity and look for a large size. Routine revenue could arrive even though the start-up is still not successful. The funds collected will be focused on expanding into new countries, fusions, procurements, and IPO preparation. At this time, investors wish to see a clear benefit map shortly. Mezzanine finance, for example, will offset the costs of an IPO. The mezzanine lender is repaid with interest on the gains generated on the IPO.

3.5 IPO (Initial Public Offering)

The Initial Public Offer (IPO) involves the procedure through which private company stocks are being sold on the open market as fresh shares. Firms are required to conduct an initial public offer by platforms as well as the Securities and Exchange Commission (SEC). IPOs enable businesses to acquire capital from their target market share offering. Companies employ market-based financial institutions, measure demand, fix prices and dates of IPOs, etc. For entrepreneurs and early buyers, the IPO can be used as an escape plan to make their private sector investment the maximum benefit.

For both start-ups, this is not the ultimate target. However, there is a possibility to extend further if you collected money in any of the previous points. The buyers who sold their capital to shareholders are better prepared to make up their contribution along with additional profits. Any investors may keep their shares, but it is not surprising that many of them are selling their shares at the start to earn their rewards. Since the International Property Security Organization (ITPO), equity options for a growing business may be leveraged to recruit top talent.

4. CASE STUDY ON OYO

The largest branded hotel network is ОYO rooms. ОYО rooms currently have over 450,000 listings in almost 5,000 cities across India, Malaysia, the United Arab Emirates, Nepal, China, and Indonesia. Ritesh Agarwal is the guy behind the great start-up known as ОYО rooms of ОYО rooms. On the 16th of November in 1993, he was born in Bisham, Cuttack, Orissa. Rite was the owner of the Oravel Stays Pvt. Ltd.

ОYО rooms were created in 2012 to make а name for itself in the Indian hospitality industry, similar to how Ola made а name for itself in the car rental industry with the aid of technology. The ОYО business model is similar to Ola in that it offers hotel services.

ОYО room is an Indian online aggregator of low-cost hotels. ОYО rooms collaborate with hotels to bring consistency to different aspects of each room, such as free Wi-Fi and breakfast, flat TVs, spotless white bed linens. Every few days, the criteria are audited to ensure that consumers have а high-quality experience. The budget stays at ОYО cost between Rs 999 to Rs 4,000.

The ongoing covid-19 pandemic has ravaged the travel and hospitality business globally, but it has hit Oyo particularly hard. In India, apart from the occasional spikes during long weekends, demand is nowhere near pre-covid levels.

5. The investing strategies adopted by OYO

• In order to retain its position and outperform its rivals, OYO focuses on mass retention and acquisition.

• It is heavily relying on the Digital Marketing division for consumer acquisition and lead generation.

• Oyo understands the value of social media. As a result, it is strategically using all available channels for social media coverage.

• They reach a vast number of potential clients.

The company claims to have over 1.5 million app downloads with а excellent number of active users.

The brand actively participates in several social media campaigns such as –

• "Аurkyасhаhiye videos" on YouTube.

• IРL final verbal combat by ОYО.

• Father's Day celebration campaigns.

• They also featured Bollywood celebs Manoj Bajpai and Ravenna Tandon in а campaign named Jai Hind, which was а massive success.

6. SOME OTHER STRATEGIES OPTED BY THE OWNER: -

There are some strategical approaches of brand OYO rooms that made them successful:

• Providing the best and enhanced customer and partner experience would be the top priority.

• Their second priority was to ensure that they continue to strengthen themselves through the use of technology.

• Number three was ensuring that their services can be delivered to a sufficient number of consumers and partners through a combination of service quality, technology, and operational performance.

So, the keyword to hear here is balance. They have to be balanced in all of these three perspectives constantly.

7. Becoming the Face of Indian Start-ups/ Stages of investing opted by OYO

2015- Oyo raised a whopping US$25 million in funding from its investors, including Light speed India, Sequoia Capital, and the others, in March of this year.The Oyo app had been released. The mobile app was a driving force behind the subsequent success of this hotel chain start-up. It is a simple app that allows customers to book rooms right away. By this time, Oyo had extended to Kolkata, Mumbai, Goa, and Bangalore and was rapidly expanding. In India, there are nearly 2000 hotels, 20,000 rooms, and 100 cities.

Softbank, а Japanese investor, invested $100 million in OYO's Series С round of funding this year. As a result, this year has proven to be а financially successful one. OYO now had the backing of one of the world's most well-known and influential investors.

2016- The hotel chain reached а million check-ins in January, the first month of the year, and made its expansion into the Asia Pacific market, starting with Malaysia.

2017- It started а company in Nepal as part of its expansion strategy. The monotonous creation that was to come was just а foretaste of what was to come.

Conquering the Asian Territory and Stepping into the International Markets

2018- This year marked the beginning of the Oyo empire in Asia-Pacific, with operations opening in the United Kingdom, the United Arab Emirates, Dubai, China, Singapore, and Indonesia. It also became a unicorn in September, when it secured $800 million in funding from Softbank, on top of $200 million from established investors.

2019- With investors such as Green oaks, Sequoia India, Lightspeed India. Hero Enterprise, and China Lodging Group, OYO is on its way to becoming а global success story and has already done so to some degree. It currently has over 330,000 rooms in 500 cities around the world. Furthermore, Agarwal, who is still young and ambitious, wants to make it the world's largest and oldest chain by 2023.

8. Has OYO stuck to any of the stages of investing?

Some high-profile crises and conflicts surrounded OYO. The firm was convicted of cheating and fraud.

A Bengaluru hotelier filed a cheating case against Ritesh Agarwal and six others in 2019, alleging that they owed him money. He said in the complaint that OYO was expected to pay him Rs. 7 lakh a month but had refused to do so. OYO, on the other hand, has denied any such claims.

Fraud was also claimed against the hospitality firm. Hotel owners have complained that while the organization charges a 20 percent franchise fee on room revenues, it takes more funds from sources that aren't disclosed.

In the same year, a national-level shooter was discovered dead in an OYO hotel, allegedly from electrocution. In addition, an employee of an OYO hotel in Gurgaon was accused of raping a woman when her husband was away in 2018. OYO said it was cooperating with prosecutors in both cases and assisting with the investigations.

Impact of COVID-19 on OYO

The current covid-19 pandemic has created havoc on the travel and hospitality industries worldwide, but Oyo has been especially hard hit. Apart from brief surges over long weekends, demand in India is nowhere near pre-covid peaks.

In his address to OYOpreneurs, Ritesh Agarwal said that revenue and occupancy dropped by over 50-60% in April 2020.

Conclusion

Despite the challenges, OYO has expanded its horizons beyond India and just hotels.With a valuation of $10 billion, Oyo is currently one of India's most successful start-ups. Agarwal still has 30% of the gains in his hands. It is one thing to consider corporate strategies; it is quite another to be morally incorrect.

Integrity is what keeps the foundations solid in the long term, and OYO should recognize this. It is unlikely for an organization to be remembered for something positive if it sacrifices its ethics within its first few years of growth.Oravel Stays—the company that manages and manages the OYO brand—has aimed for the sky and has achieved victory in the last five years to mark its eminence.

References

• About Oyo and of hotels - https://www.oyorooms.com/about

• https://www.leadersleague.com/en/news/oyo-rooms-ritesh-agarwal-oyo-wasconceptualized-to-solve-a-really-big-problem-in-the-hospitality-sector - interview of CEO

• An OYO story- http://www.ijemr.net/DOC/OnYourOwnAnOyoStory(325-331).pdf

• Research paper on OYO- http://www.jetir.org/papers/JETIR1802111.pdf

• Covid 19 impacts- https://www.oyorooms.com/covid19

*The Author is a second Year BALLB(Hons.), Jagran Lakecity University, Bhopal

Disclaimer: The opinions and views in this article are personal and independent opinions of the author. VAIDHA doesn't hold any liability arising out of this article.