OYO Keeps on Getting in Bigger Mess and SoftBank Can’t Help it

OYO Keeps on Getting in Bigger Mess and SoftBank Can’t Help it

OYO has witnessed a strong growth over the last few years and the startup received major support from big investor SoftBank. However, OYO started facing troubles few months ago and reports kept flowing about things going bad at OYO. SoftBank suffered a major blow for its investment in WeWork (more about that later in the article). SoftBank has been pulling back from its support for OYO and this has led to more trouble for the Indian startup.

Coronavirus will kill majority of its business over the next few months. Tourism sector is facing trouble and no one can guess when the things will return to normal for hotels. OYO operates mainly in low-price range hotels.

Startups lack professional management and in the recent times, VC investments have been in focus for not helping startup promoters by bringing in fiscal discipline. VCs have mainly been supporting with money but majority of startups need the right guidance about management as well. We have seen more startups failing due to mismanagement of funds rather than lack of funds.

After facing major setbacks and higher losses, OYO decided to cut its workforce in China and some other markets outside India.

OYO has been blamed by many hotel owners for not paying the dues for many months. OYO founder surprised everyone by buying back stake in his company at a much elevated valuations.

As per the latest report published by Economic Times, “Executives at Oyo have submitted “invalid” no-objection certificates from about 70 hotels to online travel agency (OTA) Booking.com last week, to change the ownership listing of the properties to the SoftBank-backed chain from rival Treebo, people familiar with the matter, including several hotel owners.” Treebo is a competitor for OYO and this kind of rivalry isn’t good for the management of OYO, already facing troubles on many fronts.

Now, about SoftBank’s mess with WeWork….

WeWork had major management issues and as market analysts started digging deeper, they found how much of mess was there in the company. The overvalued startup, backed by SoftBank suffered a major blow and had to shelve its IPO.

Leadership change needed at SoftBank?

It is quite obvious that SoftBank management would be blamed for not being careful about how the money was spent at the companies it has funded. However, there is another major issue with SoftBank. In the recent years, it has come up that SoftBank has overvalued many companies. Maybe the board at SoftBank should consider a leadership change. Otherwise, this major VC would continue bleeding money on some startups with amateur management.

I completely understand that VCs see value in companies they invest in. And, they invest in future of these companies. However, they should not allow the management of these companies to bleed money for years, before they plan to turn into profit. There are many examples of companies that continue to bleed, OYO, PAYTM, ZOMATO, FLIPKART and SWIGGY. No one can guess if these companies will ever turn profit. FlipKart is a successful business but even FlipKart hasn’t reported profit. FlipKart is surely a well-managed company but investors in this company should ask the management about their goals for turning profit.

The views presented in this article are personal and not of the TopNews management.

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