Why Indian Unicorn OYO's Buying Back Shares has Set an Unprecedented Trend of Start-up Founders Looking to Retain Control
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The start-up ecosystem is witnessing a trend of founders taking steps to bolster their control in the company. Adding to this trend, Ritesh Agarwal, founder and CEO of OYO, has announced the buyback of his shares from investors Lightspeed Venture Partners and Sequoia Capital. This move will increase his stake in the company to 30 per cent, a major jump from the initial 10 per cent control Agarwal had in his hands.
The Competition Commission of India or CCI has given the approval for the same and also demanded the infusion of $500 million into the company. Agarwal will be financing the buyback from Japanese banks Nomura and Mizuho Bank using debt.
With this deal OYO will pocket Lightspeed Venture Partners’ 13.4 per cent stake worth $1 billion and 10.24 per cent stake of Sequoia Capital valued at $500 million.
Learning from What Flipkart’s Fate
Start-up entrepreneurs have gradually been realizing the need to retain control in their company. Flipkart is a reigning example of what happens when founders lose control. A 77 per cent stake by Walmart costed the Bansals the company they had built with their own sweat and toil. Cab aggregator Ola’s co-founder and CEO, Bhavish Aggarwal turned down a staggering $1.1 billion from star investor Softbank to retain greater control and stake in the company. The infusion would have costed Agarwal giving away 40 per cent stake in the company.
Amit Rathi, Managing Director of Unitus Capital, says that every entrepreneur wants to retain greater control in the company.
“This move is important for wealth creation and also because entrepreneurs want to ensure that they are kept at the helm of the company’s affairs.” He further said that having a minority stake in the company risks them of being kicked out.
Rathi also added that if investors have faith in the way an entrepreneur is running the operations, then the latter don’t have to worry about their stake.
While Bhavish Aggarwal and Ritesh Agarwal taking steps to ensure that entrepreneur’s control is not diluted in the company, the trend will see an upsurge in the coming times.OYO has been on an expansion spree but it is yet to prove that its business model is profitable.
Some Raging Fires
This news has come at a time when OYO is battling the raging fires. Just last week, a first information report (FIR) was filed against Agarwal by Natarajan VRS, a Bengaluru-based hotelier accusing the OYO founder of unfair business practices. Soon after, there were reports that Bruhat Bangalore Hotels Association has had also written to the police commissioner in Bengaluru to conduct a probe against the company. OYO and hoteliers are yet to make peace on the conflict.