The Oyo investor who is laughing all the way to the bank

The man behind the Oyo exit is Bejul Somaia, partner, Lightspeed Venture Partners which is likely to make around $1 billion on an investment of $28 million, multiplying its money 35 times, reports Ranju Sarkar.

Illustration: Dominic Xavier/Rediff.com.

Lightspeed Venture Partners, an early investor in Oyo Rooms, is likely to make around $1 billion on an investment of $28 million, multiplying its money 35 times.

This will be the best exit in India in terms of returns (Tiger Global's $3-billion exit from Flipkart was the biggest, which made a 2x return over its $1-billion investment). And, there's more in store -- it will retain 4 per cent stake valued at $400 million.

The reason for this spectacular exit is because Lightspeed invests very early, often when a start-up is raising seed-stage funding or incubates businesses, and works closely with the firm.

It also invests in first-principles businesses that are trying to solve country-specific problems, and not on copycats. It's very selective and makes only two to four bets in a year. Being a small fund also helps.

The man behind the Oyo exit is Bejul Somaia, partner, Lightspeed Venture Partners. K Ganesh, an entrepreneur-turned-investor, says Somaia is extremely hands-on, and works more like a co-founder with the entrepreneur.

"He is a more of a company-builder than a board member who gets deeply involved in solving key problems facing a st­a­rt-up. While doing so, he's able to see the big picture," says Ganesh, founder, TutorVista, a Lightspeed investee firm.

Oyo founder & CEO Ritesh Agarwal, who is increasing his stake to 30 per cent from 10 per cent in a $2-billion leveraged deal through a primary and secondary deals, has publicly acknowledged Somaia's contribution.

"One person who has been with us since we were two-properties-old is Bejul Somaia, managing director of Lightspeed India -- our first institutional shareholder. And he taught me how to hire right," Agarwal said in April 2018.

A few months after Oyo began, the results were not commensurate with the efforts. "Bejul suggested that I bring in someone who can complete the job for me. Across portfolio companies globally, Lightspeed had seen that bringing one good person in could change the destiny of the company," Agarwal had said in an interview.

Few months later, Oyo bought in Abhinav Sinha as chief operating officer or COO, a chief growth officer, and then the others.

An alumnus of London School of Economics and Harvard Business School, the banker-turned entrepreneur joined Lightspeed in the US but soon relocated to start its operations here in 2009.

Somaia may not be as well-known venture capitalist as Subrata Mitra of Accel (first investor in Flipkart) or a Shailendra Singh of Sequoia India (India's largest VC firm), but he has generated four exits and is sitting on four unicorns. Oyo will be Lightspeed's fourth exit after Tutor Vista and Indian Energy Exchange (IEE).

Oyo, Udaan, Sha­r­e­Chat and Byju's are unicorns. For a small fund like Lightspeed, one big exit such as Oyo can change the ec­onomics. Lightspeed has four unicorns.

A firm such as Sequoia India, which has $4.5 billion assets under management or AUMs and raised more funds, will need to ge­n­erate 3-4 unicorn exits and several $500 million ex­its to return the capital.

"I am very happy for Lightspeed. For Indian teams of global funds, it is difficult to justify an investment here given the size and scale of exits in China and the US," says an in­vestor who didn't wish to be quoted.

This explains why big global funds such as Norwest and NEA have struggled in India. With Oyo-like exits, few will ask such questions.

Globally, Lightspeed has been on a dream run. In the past three years, the Menlo Park (US)-based company made eight-nine exits.

Since it invests in early stages and picks up significant stakes in start-ups, several of these were multi-billion exits.

Salesforce bought business software firm Mulesoft for $6.5 billion and Cisco Systems acquired AppDynamics for $3.2 billion.

Many other portfolio companies went for IPOs -- Nutanix (market cap $4.58 b­i­l­lion), Zscaler ($10.76 billion), St­ich Fix ($2.69 billion) and SnapChat ($23.82 billion). In all of these, Lightspeed was an early investor, with significant shareholding.

Lightspeed has done well in India, too, with three exits -- Tutor Vista, which was acquired by Pearson; ItzCash, when Ebix acquired 80 per cent stake in it, and IEE. It had bought 10 per cent in IEE for Rs 35 crore, then valued at Rs 5,000 crore in the IPO.

Lightspeed had invested in IEE when the r­u­­pee was at 44 to a dollar. At a constant currency, IEE would have b­een an unicorn ($1 billion valuation).

There is a second set of companies scaling up rapidly and becoming unicorns. These include Oyo Rooms, Byju's, Udaan, ShareChat.

There is yet another set of firms, which are innovative -- OneAssist, Shuttl, LimeRoad, Fresh Menu. Not early-stage but not fully discovered yet, says an observer.

Finally, there are young companies such as Freight Tiger, DarwinBox and MagicPin all doing well.

Lightspeed invests from seed-stage to Series-B; often in pre-product or pre-revenue and then works closely with the company.

In India, the VC entity was investing through its global funds till 2015, when it raised $135-million Lightspeed India Partners-I for early-stage investment.

For later-stage deals, it invests through Lightspeed Venture Partners XI and Lightspeed Select, its global expansion stage fund.

Relative to peers, Lightspeed operates at a steady pace, investing only in two to four companies a year.

How is its approach in India different than in the US? "It is broadly the same. We are comfortable with the ambiguity of early-stage investing," Somaia had told Business Standard in March 2018.

Except in the US, it makes two-thirds of its bets on enterprises and a third of these in consumer companies; in India, 60 per cent of its bets are in the consumer space and 40 per cent in enterprise.

While it invests in global themes like fintech, software-as-a-service and marketplaces, it follows a very bottom-up, first principles approach in terms of what companies it needs to build in India.

That is why many of those it has backed, such as Tutor Vista, Oyo Rooms, Udaan, do not have analogues in other markets, and cannot be called the 'X of India'.

Rather, it tries to find what businesses will work in India, and then backs these globally till they scale up. For instance, there was no VC-backed energy exchange that has scaled up, and yet it decided to back IEE, as it felt there was a need for it in India.

Similarly, Oyo's strategy is different from Airbnb in the way it has implemented its business model.

While both help people monetise their properties, Oyo saw its role beyond aggregation, in refurbishing and standardising the supply and providing the promise of a brand.