Bengaluru: Oyo Rooms (Oravel Stays Pvt. Ltd), India’s third most valuable startup, is in advanced talks to buy a significant stake in cloud-kitchen startup FreshMenu, according to two people directly familiar with the matter. If the negotiations are successful, Oyo will add the online food delivery business to its portfolio, complementing its budget hotels business.

Discussions with FreshMenu come just months after Oyo raised close to $1 billion, boosting the hospitality chain’s valuation to nearly $5 billion.

“Oyo is building a food team, which will help FreshMenu expand to more cities under the brand name of Oyo," said one of the two people cited above, requesting anonymity. “The idea could be more about adding the element of food to further build the hospitality business rather than getting into food delivery entirely."

Mint could not immediately ascertain the value of the transaction.

Ritesh Agarwal, founder of Oyo Rooms, run by Oravel Stays Pvt. Ltd.
Ritesh Agarwal, founder of Oyo Rooms, run by Oravel Stays Pvt. Ltd. (Bloomberg)

When contacted for comment, an Oyo spokesperson said: “We do not comment on industry speculation and, therefore, cannot comment on this. As the largest hotel chain in India, operating franchised and lease assets, we do have an active play in the F&B business with over 25% of our revenue coming through the kitchens we operate in our hotels and, hence, culinary design and good food experience are valuable to us."

FreshMenu did not respond to queries by Mint till publishing of this story.

Lightspeed Venture Partners, a common investor in Oyo and FreshMenu, played a key role in bringing the two to the discussion table, said the second person cited earlier.

The food-tech sector has become hypercompetitive as companies such as Swiggy, Zomato, Uber and Ola battle it out for leadership. This makes it difficult for smaller companies, such as FreshMenu, to compete with deep-pocketed incumbents, which offer deep discounts to win market share.

Rashmi Daga, founder at FreshMenu.
Rashmi Daga, founder at FreshMenu. (Mint)

“At the end of the day, FreshMenu is just a brand selling on aggregators such as Swiggy and Zomato," said one of the investors in the food-tech space, requesting anonymity. “They would just end up being one among the many brands on the platform—which makes it difficult to compete."

Founded by Rashmi Daga, FreshMenu has been in the market to raise funds for several months now. Mint had reported in August that FreshMenu was in talks to raise $25-30 million. It has also been an acquisition target and previously held talks with Ola, which bought Foodpanda in late 2017.

FreshMenu raised $5 million in a Series A round from Lightspeed in 2015, followed by a $17 million round in 2016 that was led by Zodius. The last round valued FreshMenu at $40-50 million. Oyo, on the other hand, flush with funds from SoftBank Group Corp., has been aggressively expanding outside India.

“Oyo now has immense amount of cash and a strong backing of SoftBank. It will surely try to use this money to enter into multiple verticals," said another investor in the startup space, requesting anonymity.

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