Wed, Jan 07 2015. 12 54 AM IST

Will the real Ritesh Agarwal please stand up?

If you are in the business of buying, selling or creating businesses, then it is quite likely that you would have heard of Ritesh Agarwal

When he was 19, Ritesh Agarwal was selected for the Thiel Fellowship, a global contest in which he was the only winner from India. Photo: Ramesh Pathania/Mint
Mumbai: If you are in the business of buying, selling or creating businesses, then it is quite likely that you would have heard of Ritesh Agarwal.
Ritesh, the wunderkind.
Born in Bissamcuttack, a village in Rayagada district of Odisha, Ritesh started coding software when he was eight years old.
At 16, Ritesh was among 240 children selected to be part of the Asian Science Camp held at the Tata Institute of Fundamental Research (TIFR) in Mumbai. The camp is an annual forum for pre-collegiate students, aimed at promoting discussion for the betterment of science in the region.
When he was 17, Ritesh authored a best-selling book; The Encyclopaedia of Indian Engineering Colleges.
When he was 17, he became the youngest chief executive officer (CEO) in India. Of a company called Worth Growth Partners.
The same year he went broke. He spent several nights on the stairs leading to his flat in Masjid Moth in New Delhi because his landlord wouldn’t let him in before he paid his dues.
When he was 18, he founded Oravel, an Indian version of the online rental site Airbnb. The same year, he secured funding of `30 lakh from VentureNursery, an accelerator which brought together a bunch of storied investors to nurture start-ups.
When he was 19, Ritesh was selected for the Thiel Fellowship—a global contest in which he was the only winner from India. Started by venture capitalist Peter Thiel, the founder and former CEO of PayPal Inc., the fellowship is intended for students under the age of 20. It offers them $100,000 over two years (about `2.7 lakh per month), as well as guidance and other resources, to drop out of school and create a start-up.
When he was 19, Ritesh keenly watched and learnt the spirit of entrepreneurship from Valley legends such as Thiel; Elon Musk, founder of SpaceX and Tesla Motors Inc., and Sean Parker, co-founder of Napster and founding president of Facebook Inc.
When he was 19, he chucked the idea of Oravel, the Airbnb clone, and changed his business to OYO Stays, a marketplace for branded budget hotels, just as Olacabs is a marketplace for cabs.
When Ritesh was 19, OYO Stays received funding of `4 crore from Lightspeed Venture Partners (LSVP) and DSG Consumer Partners, Singapore, at a pre-money valuation of `14 crore. Pre-money refers to the valuation of a company prior to investment or financing.
When he was 20, OYO Stays received funding of $6 million (about `36 crore) from Sequoia Capital and LSVP at a pre-money valuation of $60 million.
When he was 20, Ritesh finally gave up on landlords. The always suspecting ones, worried that he would bring girls to their flats. He moved into an OYO room in Gurgaon.
Over the last four years, Ritesh has been covered by the media extensively. Pieces on him have appeared in this newspaper, The Economic Times, The Hindu, The Times of India, Reuters, CNBC Awaaz, Business Standard, Business Insider, yourstory.com, nextbigwhat.com and medianama.com.
On 16 November 2014, Ritesh turned 21.
This writer and Ritesh chatted for more than eight hours over two days. On what it feels to be 20, the story of Oravel, Ritesh’s growing up days, building an empowered organization, the burden of expectations and the irritating culture of calling just about anyone in Delhi ‘Sir’.
On 7 November 2014, at about 1.15pm, the interview ended.
At 3:09pm, Ritesh sent out an email to Manish Sinha, a 42-year-old former colleague.
Subject: Newspaper.
“Hi…Reaching out that there is a reporter from Mint who is in town and wanted to know about the split, as per our agreement I stuck to it and said that we have a gentleman’s agreement and can’t speak anything on that and closed. This is just letting you know in case he reaches out.”
Only, this writer had already met Sinha. A while back. After a month of hounding.
‘Grey zones’
“See, Ritesh is a gifted and talented person. I genuinely believed in his ability and story when he first signed me up as a co-founder,” he said. “But later there was this other side to his personality that surfaced. Many things that happened are unethical and I have lived with them not fully knowing or realizing what had gone on. Though I discovered it somewhat late I feel that the complete story—with his grey zones and his propensity for unfair play—needs to be told.”
But he is just 20, right?
“Yes but fundamental flaws in character can in time override great talent and cause larger damage. He might do the same thing again if not checked.”
It is quite likely that you’ve heard this story before. Or read about it. Or been a part of it.
It happened at Facebook. At Twitter. At redBus.
This is that story and more. A co-founder booted out, employees not given their due and hung out to dry, pieces of paper with informal promises of a stake, a charismatic founder’s attempt to wipe the slate clean, exaggerated pitches, cold and calculated interference of venture capital firms, their sanctimonious contracts and clauses, and the world of make-believe valuations.
In reporting this story, Mint conducted interviews with most of the protagonists (hey, everyone is a good guy, right?) and pored over several documents, agreements and email correspondence between employees and investors.
The meeting—6 November 2014.
There is a bit of a crisis. At Oravel. Inside Room No 325, B-2 Tower, Spaze IT Park, Gurgaon.
It’s been five days since the start of the month, but employees have not received their salaries. The problem: in the documents filed with the bank, Ritesh’s signatures did not match, so Yes Bank Ltd did not credit the amount. Ritesh needed to sign all the documents all over again. Ritesh and this writer are discussing how stuff like this always happens at start-ups.
“For people who earn on an average about `15,000 a month and who travel a lot, if the salary is late then the landlord will throw him out. I know how life is after that because I have been there. I want to give autonomy to people. For the lack of money, their productivity should not be hurt.”
After some time, the conversation turns a bit thoughtful.
“You know, for us the ethics and values of running a business are very different,” he says.
How?
“Peter (Thiel) says this to me often. ‘Ritesh, I am sure you will grow, do well but don’t whatever your culture.”’
Whatever?
“Can I say this…?” (Pointing towards the Dictaphone)
Yeah.
“So, don’t fuck around with your culture. He says that’s a top thing you’ve got to be concerned about. Everything else is fine, you will do it and I have trust in you. And he’s like, you have never worked earlier so you don’t know what should or shouldn’t happen in your organization. This is great advice for us and we try to take that very, very seriously. So we have regular town halls every month. Our first town halls used to be two people. Last month we had 100 people and people couldn’t breathe because it was so crowded.”
The back story
Ritesh is fair, tall, and thin, with an unkempt look about him. Hair all over the place, shabby beard, dirty nails, dressed in a light blue shirt and dark blue trousers that would have looked better if ironed—the look of a founder putting in 16 hours a day to make his dream come true. After all, for a kid who’s dreamt of this from as far back as he can remember, it has been a hell of a journey getting this far.
The way Ritesh tells it, it is quite a story.
His growing up days in Rayagada, Odisha, were about a lot of fun and learning. And very different from those of other kids. His family was well-off so Ritesh would get around `300 in pocket money every month, even when he was in second grade at the Sacred Heart School.
“Other people’s view was that saving a rupee is a rupee earned,” he says. “But for our family, earning two rupees is a rupee earned. That means spending that 1 rupee to make that happen is what it is. It is a difference of risk-taking appetite, going out and doing stuff.”
This view of the world ensured that Ritesh had a lot of time to himself. To figure out what’s inside a floppy disk or a CD. It helped that there was a computer at his father’s office.
“I basically screwed around with the computer tens of times,” he says. “So I would put posters in the printer when I would not find A4 sheets. A lot of these things are just the opportunity to make mistakes.”
That’s how he got interested in software. It started with a kite, then a bird and then the hunger for more. So Ritesh devoured his elder brother’s books. Followed by the school’s curriculum which ensured that languages like Basic and Pascal were taught. And then Google. He believes that programming is nothing but application of logic. And once you have that, then you can seamlessly move across languages.
So software was love. By the time he was in 10th grade, Ritesh knew he wanted to code for a living. The question was how? His idea: engineers, those who go to Indian Institute of Technology (IIT), would be coders, right? And where do they go to get into IIT? Kota (the engineering preparation town in Rajasthan).
But seriously, Kota? For coding?
“See, I did not have anyone I could have asked if I can go to Kota or not,” he says. “No one in my town had ever gone to Kota. I mean, it was a big deal if people went to Bhubaneswar.”
In 2009, Ritesh left for Kota. His dad picked up the tab for his admission to Bansal Tutorials. Once there, it didn’t take him long to figure that Kota was anything but a place where you could learn coding. The dream of coding took a backseat. So did attending coaching classes. Ritesh had a lot of time. To do just about anything he wanted.
So he wrote a book. The Encyclopedia of Indian Engineering Colleges. He says, “This was like Princeton Review of India,” he says. “It was big on Flipkart. Sold out. A lot of people have bought it. I remember the bookshop inside Bansal had this book and my picture was right on the cover.”
And then events. Yes, that. Kota bored him, so very often Ritesh would take a train and head to Delhi. There he would stay at odd bed & breakfast (B&B) places and attend events and conferences to meet entrepreneurs. He couldn’t afford the registration costs so he would just sneak in.
Oravel, OYO
In May 2011, he moved to Delhi. For good. With the idea of working on a start-up of his own and preparing for SAT so that he could go to the US for further studies. Money was not a problem. There were savings from Kota and the pocket money was good; `15,000 a month. But SAT never happened.
After a year of doing really nothing except meeting people and reading about start-ups, especially Airbnb, in February 2012, Ritesh incorporated Oravel.
“So I was waking up and staying at B&B properties for almost three months. It was a fun time,” he says. Of course, it was a tough thing starting out. “For a long time, it was just me, Anuj Tejpal (operations) and a couple of interns, that’s it.”
Was he doing everything?
“Yes.”
When did the first employee join?
“2012 December after the first round of funding came in.” (VentureNursery)
Who was it?
“Sahil Arora, a young Amity guy. He was one of the most amazing guys I have worked with. Did not know how to write an email. But he was the only guy who came in my budget. It was `8,000.”
Two people! How long before the next hire?
“A month or two months, maybe. Then some interns joined and Anuj came on board. He was working with ZS Associates before this. So he called our call centre, and back then it was manned by Sahil. So Sahil just gave the phone to me. That’s how we got him on board.”
How did he find you?
“There was news, right, that Oravel raised funding from VentureNursery. We were doing too many things at the same time.”
Soon after, OYO happened. Taking a cue from online retail companies, Ritesh felt that Oravel, too, should have a private label. Some place where they could monitor the customer experience.
Then early in 2013, the Thiel Fellowship happened. After that, there was no looking back. As soon as Ritesh got back from the US in July 2013, LSVP and DSG Consumer Partners invested. And then in May 2014, Sequoia Capital and LSVP. What started out as a one-person company today employs more than 100 people. It is growing at breakneck speed. People are being added almost on a daily basis and OYO Stays is venturing into other cities such as Bengaluru and Mumbai. It is already present in Gurgaon, Noida and Delhi.
There is little space left in the cramped office. Ritesh is hoping to shift soon to a larger office in the same building on the 6th floor, right now occupied by Cap Gemini SA. That the dream has, in a way, played out can sometimes be frightening.
“It is such an exciting journey that I get overwhelmed,” says Ritesh. “There are so many people who are dependent on me. You know, setting expectations, and then feeling afraid. But I am a firm believer in the fact that good work has always been recognized.”
Now that’s one hell of a story.
Or is it?
The storyteller
It would be fair to say that sometimes entrepreneurs like to dress up— the idea, the projections, the pain of bootstrapping and even the back story—to make it that one perfect story. One that would make the world sit up and take notice. But sometimes, it helps to dig a little deeper.
For Ritesh’s story, let’s start with the Asian Science Camp held at TIFR in Mumbai in 2010. While Ritesh has maintained that he was invited for it or participated in it—he even wrote about it at http://riteshagar.blogspot.in—the story is a little different. Mint reached out to TIFR to check if Ritesh was one of the 240 people selected to be part of the camp. No.
“We selected some 30 people from India,” said Sumana Amin, camp secretary of the camp in 2010 at TIFR. “There is no one by the name of Ritesh Agarwal on that list.”
Now, how about the bestselling book? Ritesh has made that claim in interviews, and also while applying for the Thiel Fellowship. Also, in Oravel’s early days captured from the company’s web archives: mintne.ws/1xwXVPv
Mint reached out to the publisher, G.K. Publications in Rajasthan. The book was anything but a bestseller. “Yes, yes, I remember Ritesh,” says Rijita, who works in the sales department at the company and prefers to use only one name. “The book didn’t do well. Maybe because of us, because we didn’t push it as much, or the content. We published only one volume of 1,100 copies. Books had come back after a year and we had to send it to the market again.”
Now, what about the company where Ritesh became the youngest CEO in India? Worth Growth Partners, actually Rational Management Consultancy Pvt. Ltd. The company was registered on 18 February 2011 at Dhulet, Rajasthan, and has two directors; Jagdish Regar and Asish Agarwal (Ritesh’s elder brother).
Mint reached out to VentureNursery (the accelerator where Oravel was incubated) to understand if Ritesh’s claims and association with Worth Growth Partners had showed up in the company’s due diligence while he was inducted into the programme.
“No,” said a senior official, who spoke on condition of anonymity because VentureNursery is still an investor in Oravel. “This is the first time I am hearing about it. See, but youth comes with passion and immaturity. If something has happened there, then we are not aware of it.”
And then, there is the story of Oravel.
“Talk is cheap. Show me the code”: Linus Torvalds. 2012
Technology is at the heart of any online business. Be it Facebook, Uber or Airbnb. The code, that is what gives these companies their strategic advantage. So you would almost expect Ritesh, who loved coding so much, to have built a product—perhaps all by himself or with some help. And to then acknowledge the person. But in Ritesh’s version of Oravel, there is no mention of Kunal Pandya, CEO of NCrypted Technologies, a web development company based out of Rajkot in Gujarat.
The website Oravel.com didn’t start with a kid, a laptop and an idea. It started sometime in April 2012 when Ritesh reached out to Pandya to buy a product called BistroStays Enterprise (an Airbnb clone).
There wasn’t enough money, but both agreed to a long-drawn payment structure. Also part of the agreement was that Oravel would specifically give credit to NCrypted Technologies—a footer to the website with a hyperlink—“Powered by NCrypted Technologies”.
Except that the Airbnb clone wasn’t enough. Ritesh needed customization. For that Pandya was willing to work and he did initially, but he needed more money.
“Before that it was just a static page,” says Pandya. “We started working together but right from the start there were many payment issues.”
This was also the time when Ritesh was out in the market looking for funding. Luckily for him, VentureNursery, an accelerator founded by Shravan Shroff, former promoter of multiplex chain Fame Cinema, and Ravi Kiran, former Starcom MediaVest Group South East and South Asia CEO, was putting together an incubator called ParallelTrack.
Apoorv R. Sharma, executive vice-president at VentureNursery, reached out to him.
“We found a guy with passion and fire in the belly,” says the VentureNursery official quoted earlier. “He had slept in 20-30 odd B&Bs, sometimes on the floor, and while some of that may be dramatized, we found him confident and assertive. So we thought that with some mentoring, he could get a chance and fly.”
In April, Ritesh got into the programme. But it came with a condition. He must find a co-founder.
Enter Manish Sinha. A former advertising guy, having worked at agencies such as JWT, Ogilvy and Mather and Mudra.
Sinha (with his wife Shilpi) was leading a quiet life in Delhi running a B&B business called Cinnamon Stays. Ritesh reached out to him to become the co-founder at Oravel.
“When he reached out, he never mentioned anything about VN (VentureNursery),” says Sinha. “His pitch was—Ritesh’s software and product brain and Manish’s advertising and marketing brain, if we put it together, we can create a great business.”
Sinha was taken in by Ritesh’s charm and passion. But their arrangement was clear and at the same time, flexible. No salary, and considering Sinha had a home and an existing B&B business to run, his role as a co-founder would be limited to ideating and mentoring.
Even as all this was happening, Ritesh was having trouble on the website. So he reached out to two developers (graduates from Georgia Institute of Technology) in Indore— Mohit Jain and Chirag Gupta of Codeautomations. On 29 June, Ritesh sent an email to Gupta. They were interested, but they wanted to mull it over.
The partnership
Around this time, Ritesh and Sinha started working together. Ritesh’s flat in Masjid Moth became Oravel’s office and with Sinha’s inputs, a hot B&B destination. The idea: a retro Bollywood theme. “It was more a branding idea from me for Oravel than business. The story of a 19-year-old CEO of a rental company working from a B&B was the PR pitch,” says Sinha.
In August, Ritesh formally introduced Sinha to the folks at VentureNursery in an email.
“Dear Shravan, Ravi (Kiran)…Manish is inducted as my partner/co-founder in Oravel. We met a year ago (app July) and became good friends by Nov. He brings with himself huge experience of Customer Servicing, Operational Expertise (Thanks to him being #1 B&B in Gurgaon) and Marketing virality.”
While at the time he overlooked this tiny detail, Sinha denies that he knew Ritesh since July 2011.
The partnership, though, got the people at VentureNursery excited. It also helped that Kiran, thanks to his background in advertising, had heard of Sinha. Post-mentoring, training and networking, part of the VentureNursery incubation programme, in late September both Ritesh and Sinha travelled to Mumbai to make a pitch to VentureNursery and its set of angels.
The beta product “with search, review and book features (in testing mode)” was Pandya’s Airbnb clone. Slide 3 had pictures of Sinha’s Cinnamon Stays. Claims of 3,000+ listings and 600+ relationships with B&Bs in Gurgaon and Delhi were significantly dressed-up numbers. In fact, at the time, Oravel had a relationship with not more than five property owners. The listings were picked up from various other booking sites and plugged into Oravel.com. But both Ritesh and Sinha agreed that this is how a pitch is made and that’s how it would be.
VentureNursery bought it.
As Sinha puts it, his brotherly love for Ritesh was at its best in September 2012. First, he designed the company’s brand identity, a brown teddy bear. And then when Oravel wasn’t getting enough bookings on the Internet, he came up with the idea for dial-a-room for non-hotels. Most important, the idea of OYO, low-cost standardized inns, was his.
In October, after almost two months of due diligence (which included flying down Ritesh’s father from Bhubaneswar to make sure that he wouldn’t push his son into college anytime soon and put the venture in jeopardy, VentureNursery put `30 lakh into Oravel.
The news that an 18-year-old had secured seed funding for a start-up was splashed everywhere.
Oravel grew. Team size? Four. Ritesh, Sinha, Anuj Tejpal (property acquisitions) and Sahil Arora (one-man call centre).
On 31 December 2012, the last day for filling up the application form, Ritesh applied for the Thiel Fellowship. Little did he know that his life was about to change.
2013
In February 2013, Jain and Gupta from Codeautomations joined Oravel. In an email to Ritesh, Jain wrote “…It would be best on interest of us and Oravel to work on Equity + cash model.” Ritesh was thrilled. He replied, “Awesome Mohit - great to hear back. Looking forward buddy.”
Jain and Gupta then flew down to Gurgaon to formalize the relationship. In a letter dated 28 February, on Oravel’s letterhead, Ritesh welcomed them as part of the core management team. And offered “approximately 10-8% (1039-855) shares of the paid up capital of the company”. Plus `25,000 per month for one designer.
The same month, Salil Aggarwal, Anuj Tejpal’s roommate and former colleague at ZS Associates, joined Oravel. “Ritesh would often be at our place to discuss business with Anuj,” says Aggarwal. “It looked very exciting so when Ritesh and Anuj asked me to join, I was like, sure.” Aggarwal, too, came on board with a promise of an equity stake in the company. Except, no documentation and no offer letter.
Over the next couple of months, the team got cracking on the job. Even as all this was happening, Pandya of NCrypted had been hounding Ritesh for money and for the credit on the Oravel website which had suddenly gone missing. “A couple of cheques had bounced and whenever I would call, he would say, I don’t have any money,” says Pandya.
On 6 March 2013, Ritesh raised this issue in an email to Gupta. “Buddy, this guy from Gujrat has requested us to do the belows…he keeps bugging me with mails for this. In case, it doesn’t steal our code/database lets paste it and live in peace.”
Then, the big news came. Ritesh had been shortlisted for the Thiel Fellowship and had to fly to San Francisco for an interview and make a pitch for Oravel. The company went into a tizzy making preparations. The work of putting together the presentation and making sure that the website worked on the D-day landed on Jain’s table.
On 7 April, (three days before leaving for the US), Ritesh sent an email to Jain. “…One thing is pretty urgent –Let’s make the earlier code and database we had on the live site…Until then we can’t afford to have the 20 under-20 guys take a note of we not having a real product…we can use the situation to our advantage in the manner of launching the day we have the final conference (13th).”
Ritesh left for San Francisco on 10 April.
The people at the Thiel Foundation were sold on the passion and vision of a 19-year-old from India. The claim: 4,000+ listings, 3,000+ happy nights, 200% growth every month, 40+ country travellers, three members (Tejpal, Gupta and Jain) from top US universities. Both Salil Aggarwal and Jain say that the numbers are far, far dressed up. Why did they agree to it? Again, because well, that’s how it is done. Also, Tejpal never went to college in the US.
In May, Ritesh was selected for the Thiel Fellowship. It was big news. Almost overnight, he became the poster boy of entrepreneurship. VentureNursery arranged for a PR agency for press interviews.
On 30 May, Ritesh left for the US.
Now back to our story; after Ritesh left for the US, it all went south.
Jain and Gupta had been getting a bit jittery. Their offer had still not materialized into a shareholder agreement. Plus they had been paying the developer (`25,000 per month) from their own pockets. In an email on 6 June, Gupta sent Ritesh a reminder.
The cracks surface
Two days later, Ritesh replied saying that he had been busy. He promised to close the agreements soon and send the cheques. “…It’s been amazing working with you guys - look forward to amazing times coming :)”
In Delhi, Salil Aggarwal was getting worried too. He had been working without a salary, except for a few reimbursements for rent and office expenses. He often discussed the issue of a stake with Tejpal but nothing came out of it.
Things took an ugly turn in June. Jain sent a long and terse email to Ritesh, saying that they had ceased all other work to focus on Oravel. “I need to get some sort of written confirmation by you on the stake we agreed mutually, i.e. 10 to 8 % (which should have been done earlier)….”
A day later, Ritesh replied saying that he agreed to it “on the face of it” and would send an “official letter” confirming the arrangement within “next 24hrs”.
Twenty-four hours became a month; the letter never came. The issue was hanging fire in July when Ritesh got back to Delhi.
He had been busy in the US.
Bejul Somaia, managing director of LSVP, and Ritesh met in the US. In June, Maninder Gulati, vice-president at LSVP, reached out to Sinha’s wife Shilpi to get her perspective on the B&B business. She directed him to her husband instead. Immediately, Sinha forwarded that email to Ritesh with a line, “Are we speaking to Lightspeed guys as well?”
Ritesh didn’t respond.
Gulati, though, got back to Shilpi. On 26 June, he replied, “Thanks Shilpi…we are in touch with Manish and Ritesh from Oravel. Manish, hopefully we will meet you when Ritesh is back.”
Sinha and Gulati never met.
In the first week of August 2013, Ritesh and Sinha met at Oravel’s office in Gurgaon.
Ten minutes into the meeting Ritesh pushed a paper towards Sinha and asked him to sign it. He then excused himself and stepped out. Sinha picked up the paper, thinking it must be a bill or something. But as he read it, the colour drained from his face. “The document stated that I would sell all my shares to Ritesh,” says Sinha. “I was furious. I just flung the paper on the table and walked out.”
Later in the day, Ritesh called Sinha to apologize and explain the situation. He blamed VentureNursery, says Sinha. “He told me that if I didn’t sell my shares immediately, I would not get any money. And that he was trying to get me a good deal.”
After what had happened, Sinha was depressed. He discussed the issue with his wife. Both concluded that the relationship had hit rock-bottom, and if this was what Ritesh and VentureNursery wanted, then he should move on. Sinha did not reach out to VentureNursery to clarify or discuss this matter, a decision he now regrets. “At the time, I was thinking that I wanted some money for the work I had put in for over a year and not zero money.”
On 10 August, a few days after the argument, Ritesh emailed Sinha an apology. “I apologize for the manner in which I carried out the conversation. I did make a grievous mistake…but I am here to set right and I will do all to make sure we reach that.”
On 13 August, Ritesh prepared a document and named it Oravel-Manish Closure.
The same day, he signed a term sheet for funding with LSVP.
On 16 August, Sinha entered into an agreement to sell his stake (10.15%) to Ritesh. For `28 lakh. Sinha had absolutely no idea about the term sheet with LSVP. “All I can say is Ritesh forced me to sell all my shares without disclosing the price and the valuation that he was getting,” says Sinha.
VentureNursery claims it had no clue what was going on. After a month of Sinha being booted out, on 19 September Ravi Kiran and Shravan Shroff sent an email to Ritesh.
“Ritesh, we have reviewed the document you sent us on Aug 30 titled ‘Oravel-Manish closure’, which appears to have been created on Aug 13 and which has got a receipt by Manish on Aug 16, along with a cheque for `200000. This is three days before you wrote to us about the fact that you had signed a term sheet with LSVP. We find this highly unusual, and in clear contravention of the SHA (shareholder agreement) both of you have signed with the investors.
…we call upon you to provide us with a clear explanation of the background to this development and the current status. You told us during our call that LSVP would like Manish to exit to create place for another co-founder with franchising experience. Yet you seemed to have agreed on an exit plan for Manish before LSVP made any investment and without any approval from existing investors.
The existing investors have always been under the impression that Manish has been 100% dedicated to Oravel and had agreed to invest with that condition. Can you please explain when that dedication got diluted and why didn’t think worth your while to seek approval?”
An anomaly in the system?
Whatever the explanation Ritesh came up with, it was enough for VentureNursery .
“Till this day I had no idea that all of this happened,” says Sinha. “I can see that he told me one thing and VN another. All I can say is that he fraudulently forced me to sell my shares.”
And while Sinha’s exit may not have been what in investing lingo is called condition precedent, at least on paper, an LSVP executive admits that it may have been the firm’s idea.
In an interview on 20 November, LSVP’s Somaia said that as part of diligence, LSVP met with Ritesh, a few employees and some property owners to understand the dynamics in the company. “We did not meet Manish,” he says. “Because part of what our background checks revealed that Manish wasn’t really a driver of the company.”
In fact, Somaia says that Sinha’s co-founder status has a lot to do with something of an anomaly in the Indian start-up ecosystem. So where in the US, co-founders are actually people who have founded the company, in India, people who have been hired early would also be called co-founders.
“We went to property owners and asked them who is OYO to you?” says Somaia. “We heard Ritesh, Anuj, but not Manish.”
“So we boarded up with Ritesh. So what’s the relationship here and how is it going to work. And he and Manish had conversations even prior to that and I won’t get into all of this. So our point to Ritesh was simply, hey look, if this relationship is not going to be one that goes forward...I don’t think it was a CP technically, I haven’t read the legal documents. So we must have said it is better to address all of that now and you would like to have clarity. That this is all addressed before we invest, right!”
Even as all this was happening, nobody at Oravel had any clue. In fact, stressed by their own issues, Jain, Gupta and Salil Aggarwal got on to a conference call early in September 2013. Its outcome was simple.
On 24 September, Jain and Gupta quit. They sent out a long email to everyone at Oravel saying they were quitting because even after eight months they hadn’t “received our paper work and shareholder agreement”. On the one hand, the company claimed it had money from “VN, Theil and now LSVP” and, on the other hand “we don’t receive any” money, they wrote.
Starting 25 September, Salil Aggarwal stopped going to work. A few days later, four other people quit the company.
‘Day in, day out’
In an emailed reply to a follow-up question, Ritesh said, “Frankly at one point of time the previous Model (Oravel) wasn’t working and we needed to find a new direction in the business and which didn’t work for some of the employees. We of course respected their decision to move on. Many others decided to stay back and I am proud to see them leading many parts of our business today.”
Did the exits at Oravel show up as a red flag for LSVP?
No.
Somaia says this is a matter-of-fact situation in the start-up world. “Perhaps this is new for you, but we breathe this day in, day out,” he says. “To me that is start-ups. They are living organisms. What’s the churn in start-ups? It’s insane. I don’t think there is anything particularly unusual about the churn you are referring to.”
How about VentureNursery? Did they bat for the employees?
“Nobody escalated this to us,” says the VentureNursery official quoted earlier. “But then our only point of contact was Ritesh and we do not interfere in an entrepreneur’s day-to-day operations.”
And then he explains a little more: “Did we set out to build a successful business? Yes. All of us made 20X on our original investment. Did we set out to build character? Yes and No. Yes because you know it is a part of institution building. No because you think it is already there. We had no reason to suspect.”
To give credit where it is due, Oravel is on to something good. It has a charismatic 21-year-old founder at the helm. And the company has captured the imagination of some of the biggest venture capital firms in the country. So much so that in less than 10 months, the period between LSVP and Sequoia’s investment, Oravel’s pre-money valuation rose from `14 crore to `360 crore.
What changed on the ground, in just 10 months, to merit such valuation? “Obviously the company has made progress. More hotels now than they had. More substance in team. But why do Flipkart’s valuations change 2X in 3 months? It is not because of something fundamental,” explains Somaia.
“The business grew,” he adds. “So it currently has somewhere between 40-45 properties. When we invested it had five, maybe. But remember rule 1, venture investors always over-pay for companies because they are buying into the future. It is an unfortunate aspect of our business but it is the reality. The math doesn’t work.”