Tech

SoftBank-backed Oyo's rapid growth reportedly fueled by questionable practices

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Key Points
  • Indian start-up Oyo, which offers budget hotel rooms, is said to have built up its domestic business by employing questionable tactics that are casting doubts on the company's health, the New York Times reported.
  • Oyo is able to bump up the number of listings on its website by including rooms from unavailable hotels, the Times said.
  • It is one of India's most promising start-ups, with a valuation of $10 billion.
Ritesh Agarwal, founder and CEO of OYO
OYO

Fast-growing Indian start-up Oyo, which offers budget hotel rooms, is said to have built up its domestic business by employing questionable tactics that are casting doubts on the company's health, the New York Times reported.

Oyo is able to bump up the number of listings on its website by including rooms from unavailable hotels, the Times said, citing chief executive Ritesh Agarwal as well as current and former employees.

Many of those rooms listed are from unlicensed hotels and guesthouses. To dodge problems that authorities might cause them over this practice, the start-up sometimes gives free accommodation to the police and other officials, according to the report.

The newspaper added that Oyo refused to pay hotels the full amounts of money they were allegedly owed, based on interviews with hotel owners and employees, emails, legal complaints, and other documents.

Agarwal founded the company in 2013 at age 19. Since then, Oyo has quickly grown across more than 80 markets and is scaling its business in the U.S. with converted properties in Dallas and Las Vegas.

SoftBank is a major investor in Oyo. Other backers include Sequoia Capital India and Lightspeed India Partners.

Both Oyo and SoftBank did not immediately respond to CNBC's requests for comment.

At the moment, Oyo is one of India's most promising start-ups, with a valuation of $10 billion. For his part, Agarwal owns 30% of the company.

But, its aggressive growth strategy under SoftBank chief Masayoshi Son's guidance has raised eyebrows and drawn comparison to another major SoftBank investment — WeWork, which rents office spaces. WeWork unraveled last year after it ditched plans to go public.

Oyo reported a net loss of 23.85 billion rupees ($332 million) in the year that ended March 2019, highlighted by a period of rapid expansion into international markets such as China, U.S., and the United Kingdom, Reuters reported.

Read more about the Times' report on Oyo's business practices and work culture here.

CNBC's Seema Mody contributed to this report.